Correlation Between Despegar Corp and Norwegian Cruise

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

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

Diversification Opportunities for Despegar Corp and Norwegian Cruise

0.83

Correlation Coefficient

Despegar Corp  Norwegian Cruise

Very poor diversification

The 3 months correlation between Despegar and Norwegian is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Despegar Corp 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 Despegar Corp 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 Despegar Corp 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 Despegar Corp i.e., Despegar Corp and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Despegar Corp and Norwegian Cruise

Given the investment horizon of 90 days Despegar Corp is expected to generate 1.12 times less return on investment than Norwegian Cruise. In addition to that, Despegar Corp is 1.27 times more volatile than Norwegian Cruise Line. It trades about 0.2 of its total potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.29 per unit of volatility. If you would invest  1,761  in Norwegian Cruise Line on September 3, 2024 and sell it today you would earn a total of  1,074  from holding Norwegian Cruise Line or generate 60.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Despegar Corp  vs.  Norwegian Cruise Line

Despegar Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Despegar Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Despegar Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Cruise Line

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting essential indicators, Norwegian Cruise demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Despegar Corp and Norwegian Cruise

The main advantage of trading using opposite Despegar Corp and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Despegar Corp 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 Despegar Corp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.