Correlation Between Marriott International and Norwegian Cruise

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

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

Diversification Opportunities for Marriott International and Norwegian Cruise

0.85

Correlation Coefficient

Marriott International  Norwegian Cruise

Very poor diversification

The 3 months correlation between Marriott and Norwegian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Marriott International 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 Marriott International 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 Marriott International 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 Marriott International i.e., Marriott International and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Marriott International and Norwegian Cruise

Considering the 90-day investment horizon Marriott International is expected to generate 3.09 times less return on investment than Norwegian Cruise. But when comparing it to its historical volatility, Marriott International is 2.02 times less risky than Norwegian Cruise. It trades about 0.1 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,009  in Norwegian Cruise Line on October 6, 2024 and sell it today you would earn a total of  533.00  from holding Norwegian Cruise Line or generate 26.53% return on investment over 90 days.

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

Marriott International  vs.  Norwegian Cruise Line

Marriott International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Marriott International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Marriott International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 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 Marriott International and Norwegian Cruise

The main advantage of trading using opposite Marriott International and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marriott International 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 Marriott International 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.