Correlation Between Norwegian Cruise and Marriott International

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

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

Diversification Opportunities for Norwegian Cruise and Marriott International

0.88

Correlation Coefficient

Norwegian Cruise  Marriott International

Very poor diversification

The 3 months correlation between Norwegian and Marriott is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Cruise Line and Marriott International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marriott International and Norwegian Cruise 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 Norwegian Cruise Line are associated (or correlated) with Marriott International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marriott International has no effect on the direction of Norwegian Cruise i.e., Norwegian Cruise and Marriott International go up and down completely randomly.

Pair Corralation between Norwegian Cruise and Marriott International

Given the investment horizon of 90 days Norwegian Cruise Line is expected to under-perform the Marriott International. In addition to that, Norwegian Cruise is 2.07 times more volatile than Marriott International. It trades about -0.14 of its total potential returns per unit of risk. Marriott International is currently generating about -0.22 per unit of volatility. If you would invest  29,248  in Marriott International on October 6, 2024 and sell it today you would lose (1,720) from holding Marriott International or give up 5.88% of portfolio value over 90 days.

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

Norwegian Cruise Line  vs.  Marriott International

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.

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.

Pair Trading with Norwegian Cruise and Marriott International

The main advantage of trading using opposite Norwegian Cruise and Marriott International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Cruise position performs unexpectedly, Marriott International 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 Marriott International will offset losses from the drop in Marriott International's long position.

The idea behind Norwegian Cruise Line and Marriott International 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.