Correlation Between Norwegian Cruise and TripAdvisor

Can any of the company-specific risk be diversified away by investing in both Norwegian Cruise and TripAdvisor 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 TripAdvisor 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 TripAdvisor, you can compare the effects of market volatilities on Norwegian Cruise and TripAdvisor 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 TripAdvisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Cruise and TripAdvisor.

Diversification Opportunities for Norwegian Cruise and TripAdvisor

0.3

Correlation Coefficient

Norwegian Cruise  TripAdvisor

Weak diversification

The 3 months correlation between Norwegian and TripAdvisor is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Cruise Line and TripAdvisor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TripAdvisor 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 TripAdvisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TripAdvisor has no effect on the direction of Norwegian Cruise i.e., Norwegian Cruise and TripAdvisor go up and down completely randomly.

Pair Corralation between Norwegian Cruise and TripAdvisor

Given the investment horizon of 90 days Norwegian Cruise Line is expected to under-perform the TripAdvisor. But the stock apears to be less risky and, when comparing its historical volatility, Norwegian Cruise Line is 1.17 times less risky than TripAdvisor. The stock trades about -0.04 of its potential returns per unit of risk. The TripAdvisor is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,433  in TripAdvisor on November 28, 2024 and sell it today you would earn a total of  64.00  from holding TripAdvisor or generate 4.47% return on investment over 90 days.

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

Norwegian Cruise Line  vs.  TripAdvisor

Norwegian Cruise Line

Risk-Adjusted Performance

Very Weak

Over the last 90 days Norwegian Cruise Line has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

TripAdvisor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TripAdvisor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward indicators, TripAdvisor may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Norwegian Cruise and TripAdvisor

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

The idea behind Norwegian Cruise Line and TripAdvisor 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.