Correlation Between NYSE Composite and Norwegian Cruise

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

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

Diversification Opportunities for NYSE Composite and Norwegian Cruise

0.47

Correlation Coefficient

NYSE Composite  Norwegian Cruise

Very weak diversification

The 3 months correlation between NYSE and Norwegian is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Norwegian Cruise go up and down completely randomly.

Pair Corralation between NYSE Composite and Norwegian Cruise

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.29 times more return on investment than Norwegian Cruise. However, NYSE Composite is 3.46 times less risky than Norwegian Cruise. It trades about 0.02 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about -0.16 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 30, 2024 and sell it today you would earn a total of  19,237  from holding NYSE Composite or generate 1.01% return on investment over 90 days.

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

NYSE Composite  vs.  Norwegian Cruise Line

Pair Trading with NYSE Composite and Norwegian Cruise

The main advantage of trading using opposite NYSE Composite and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.