Correlation Between Alphabet and Norwegian Cruise

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

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

Diversification Opportunities for Alphabet and Norwegian Cruise

0.68

Correlation Coefficient

Alphabet  Norwegian Cruise

Poor diversification

The 3 months correlation between Alphabet and Norwegian is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Alphabet and Norwegian Cruise

Given the investment horizon of 90 days Alphabet is expected to generate 1.19 times less return on investment than Norwegian Cruise. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.78 times less risky than Norwegian Cruise. It trades about 0.09 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,855  in Norwegian Cruise Line on October 5, 2024 and sell it today you would earn a total of  8,070  from holding Norwegian Cruise Line or generate 102.74% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Norwegian Cruise Line

Alphabet Class C

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Cruise Line

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 18 (%) 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 Alphabet and Norwegian Cruise

The main advantage of trading using opposite Alphabet and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.