Correlation Between Travel Leisure and Norwegian Cruise

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

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

Diversification Opportunities for Travel Leisure and Norwegian Cruise

0.52

Correlation Coefficient

Travel Leisure  Norwegian Cruise

Very weak diversification

The 3 months correlation between Travel and Norwegian is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Travel Leisure Co 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 Travel Leisure 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 Travel Leisure Co 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 Travel Leisure i.e., Travel Leisure and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Travel Leisure and Norwegian Cruise

Considering the 90-day investment horizon Travel Leisure Co is expected to generate 0.7 times more return on investment than Norwegian Cruise. However, Travel Leisure Co is 1.44 times less risky than Norwegian Cruise. It trades about -0.03 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  4,946  in Travel Leisure Co on December 29, 2024 and sell it today you would lose (222.00) from holding Travel Leisure Co or give up 4.49% of portfolio value over 90 days.

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

Travel Leisure Co  vs.  Norwegian Cruise Line

Travel Leisure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Travel Leisure Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Travel Leisure is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 conflicting performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Travel Leisure and Norwegian Cruise

The main advantage of trading using opposite Travel Leisure and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travel Leisure 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 Travel Leisure Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.