Correlation Between Norwegian Cruise and Spirit Airlines

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Can any of the company-specific risk be diversified away by investing in both Norwegian Cruise and Spirit Airlines 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 Spirit Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norwegian Cruise Ord and Spirit Airlines, you can compare the effects of market volatilities on Norwegian Cruise and Spirit Airlines 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 Spirit Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Cruise and Spirit Airlines.

Diversification Opportunities for Norwegian Cruise and Spirit Airlines

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Norwegian and Spirit is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Cruise Ord and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines 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 Ord are associated (or correlated) with Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of Norwegian Cruise i.e., Norwegian Cruise and Spirit Airlines go up and down completely randomly.

Pair Corralation between Norwegian Cruise and Spirit Airlines

Given the investment horizon of 90 days Norwegian Cruise Ord is expected to generate 1.86 times more return on investment than Spirit Airlines. However, Norwegian Cruise is 1.86 times more volatile than Spirit Airlines. It trades about 0.17 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.02 per unit of risk. If you would invest  1,153  in Norwegian Cruise Ord on May 9, 2022 and sell it today you would earn a total of  168.00  from holding Norwegian Cruise Ord or generate 14.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Norwegian Cruise Ord  vs.  Spirit Airlines

 Performance (%) 
       Timeline  
Norwegian Cruise Ord 
Norwegian Performance
0 of 100
Over the last 90 days Norwegian Cruise Ord has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Norwegian Price Channel

Spirit Airlines 
Spirit Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Spirit Airlines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Spirit Airlines exhibited solid returns over the last few months and may actually be approaching a breakup point.

Spirit Price Channel

Norwegian Cruise and Spirit Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Norwegian Cruise and Spirit Airlines

The main advantage of trading using opposite Norwegian Cruise and Spirit Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Cruise position performs unexpectedly, Spirit Airlines 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 Spirit Airlines will offset losses from the drop in Spirit Airlines' long position.
The idea behind Norwegian Cruise Ord and Spirit Airlines 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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