Correlation Between Chesapeake Granite and Norwegian Cruise

Can any of the company-specific risk be diversified away by investing in both Chesapeake Granite 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 Chesapeake Granite and Norwegian Cruise into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chesapeake Granite Wash and Norwegian Cruise Line, you can compare the effects of market volatilities on Chesapeake Granite 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 Chesapeake Granite with a short position of Norwegian Cruise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Granite and Norwegian Cruise.

Diversification Opportunities for Chesapeake Granite and Norwegian Cruise

0.63

Correlation Coefficient

Chesapeake Granite  Norwegian Cruise

Poor diversification

The 3 months correlation between Chesapeake and Norwegian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Granite Wash 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 Chesapeake Granite 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 Chesapeake Granite Wash 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 Chesapeake Granite i.e., Chesapeake Granite and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Chesapeake Granite and Norwegian Cruise

If you would invest  13,748  in Norwegian Cruise Line on October 20, 2024 and sell it today you would earn a total of  2,777  from holding Norwegian Cruise Line or generate 20.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.69%
Values	Daily Returns

Chesapeake Granite Wash  vs.  Norwegian Cruise Line

Chesapeake Granite Wash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chesapeake Granite Wash has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Chesapeake Granite is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 Chesapeake Granite and Norwegian Cruise

The main advantage of trading using opposite Chesapeake Granite and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chesapeake Granite 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 Chesapeake Granite Wash 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.