Correlation Between Citizens Financial and Norwegian Cruise

Can any of the company-specific risk be diversified away by investing in both Citizens Financial and Norwegian Cruise at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Citizens Financial and Norwegian Cruise into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citizens Financial Group, and Norwegian Cruise Line, you can compare the effects of market volatilities on Citizens Financial and Norwegian Cruise and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Citizens Financial with a short position of Norwegian Cruise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citizens Financial and Norwegian Cruise.

Diversification Opportunities for Citizens Financial and Norwegian Cruise

0.92

Correlation Coefficient

Citizens Financial  Norwegian Cruise

Almost no diversification

The 3 months correlation between Citizens and Norwegian is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group, and Norwegian Cruise Line in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Cruise Line and Citizens Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Citizens Financial Group, are associated (or correlated) with Norwegian Cruise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Cruise Line has no effect on the direction of Citizens Financial i.e., Citizens Financial and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Citizens Financial and Norwegian Cruise

Assuming the 90 days trading horizon Citizens Financial Group, is expected to generate 1.1 times more return on investment than Norwegian Cruise. However, Citizens Financial is 1.1 times more volatile than Norwegian Cruise Line. It trades about 0.15 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.14 per unit of risk. If you would invest  23,638  in Citizens Financial Group, on October 24, 2024 and sell it today you would earn a total of  5,342  from holding Citizens Financial Group, or generate 22.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.31%
Values	Daily Returns

Citizens Financial Group,  vs.  Norwegian Cruise Line

Citizens Financial Group,

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Citizens Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Cruise Line

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Norwegian Cruise sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citizens Financial and Norwegian Cruise

The main advantage of trading using opposite Citizens Financial and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial position performs unexpectedly, Norwegian Cruise can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Norwegian Cruise will offset losses from the drop in Norwegian Cruise's long position.

The idea behind Citizens Financial Group, and Norwegian Cruise Line pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.