Correlation Between Booking Holdings and Norwegian Cruise

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

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

Diversification Opportunities for Booking Holdings and Norwegian Cruise

0.95

Correlation Coefficient

Booking Holdings  Norwegian Cruise

Almost no diversification

The 3 months correlation between Booking and Norwegian is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Booking Holdings 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 Booking Holdings 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 Booking Holdings 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 Booking Holdings i.e., Booking Holdings and Norwegian Cruise go up and down completely randomly.

Pair Corralation between Booking Holdings and Norwegian Cruise

Given the investment horizon of 90 days Booking Holdings is expected to generate 0.67 times more return on investment than Norwegian Cruise. However, Booking Holdings is 1.49 times less risky than Norwegian Cruise. It trades about 0.31 of its potential returns per unit of risk. Norwegian Cruise Line is currently generating about 0.18 per unit of risk. If you would invest  474,911  in Booking Holdings on September 2, 2024 and sell it today you would earn a total of  45,287  from holding Booking Holdings or generate 9.54% return on investment over 90 days.

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

Booking Holdings  vs.  Norwegian Cruise Line

Booking Holdings

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Booking Holdings are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Booking Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Norwegian Cruise Line

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Cruise Line are ranked lower than 20 (%) 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.

Pair Trading with Booking Holdings and Norwegian Cruise

The main advantage of trading using opposite Booking Holdings and Norwegian Cruise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Booking Holdings 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 Booking Holdings 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.