Correlation Between Norwegian Cruise and Wyndham Hotels

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

Diversification Opportunities for Norwegian Cruise and Wyndham Hotels

0.84

Correlation Coefficient

Norwegian Cruise  Wyndham Hotels

Very poor diversification

The 3 months correlation between Norwegian and Wyndham is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Cruise Line and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of Norwegian Cruise i.e., Norwegian Cruise and Wyndham Hotels go up and down completely randomly.

Pair Corralation between Norwegian Cruise and Wyndham Hotels

Given the investment horizon of 90 days Norwegian Cruise Line is expected to generate 1.94 times more return on investment than Wyndham Hotels. However, Norwegian Cruise is 1.94 times more volatile than Wyndham Hotels Resorts. It trades about 0.04 of its potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about 0.04 per unit of risk. If you would invest  1,745  in Norwegian Cruise Line on October 6, 2024 and sell it today you would earn a total of  797.00  from holding Norwegian Cruise Line or generate 45.67% return on investment over 90 days.

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

Norwegian Cruise Line  vs.  Wyndham Hotels Resorts

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.

Wyndham Hotels Resorts

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical indicators, Wyndham Hotels demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norwegian Cruise and Wyndham Hotels

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

The idea behind Norwegian Cruise Line and Wyndham Hotels Resorts 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..