Correlation Between International Business and Norwegian Cruise

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

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

Diversification Opportunities for International Business and Norwegian Cruise

0.04

Correlation Coefficient

International Business  Norwegian Cruise

Significant diversification

The 3 months correlation between International and Norwegian is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine 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 International Business 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 International Business Machines 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 International Business i.e., International Business and Norwegian Cruise go up and down completely randomly.

Pair Corralation between International Business and Norwegian Cruise

Considering the 90-day investment horizon International Business Machines is expected to under-perform the Norwegian Cruise. But the stock apears to be less risky and, when comparing its historical volatility, International Business Machines is 1.3 times less risky than Norwegian Cruise. The stock trades about -0.21 of its potential returns per unit of risk. The Norwegian Cruise Line is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  16,541  in Norwegian Cruise Line on October 5, 2024 and sell it today you would lose (616.00) from holding Norwegian Cruise Line or give up 3.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

International Business Machine  vs.  Norwegian Cruise Line

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 International Business and Norwegian Cruise

The main advantage of trading using opposite International Business and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.