Correlation Between NMI Holdings and MACOM Technology

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

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

Diversification Opportunities for NMI Holdings and MACOM Technology

-0.15

Correlation Coefficient

NMI Holdings  MACOM Technology

Good diversification

The 3 months correlation between NMI and MACOM is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol and NMI 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 NMI Holdings are associated (or correlated) with MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of NMI Holdings i.e., NMI Holdings and MACOM Technology go up and down completely randomly.

Pair Corralation between NMI Holdings and MACOM Technology

Assuming the 90 days horizon NMI Holdings is expected to generate 1.4 times less return on investment than MACOM Technology. But when comparing it to its historical volatility, NMI Holdings is 1.46 times less risky than MACOM Technology. It trades about 0.08 of its potential returns per unit of risk. MACOM Technology Solutions is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,900  in MACOM Technology Solutions on October 5, 2024 and sell it today you would earn a total of  6,700  from holding MACOM Technology Solutions or generate 113.56% return on investment over 90 days.

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

NMI Holdings  vs.  MACOM Technology Solutions

NMI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

MACOM Technology Sol

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days MACOM Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, MACOM Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and MACOM Technology

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

The idea behind NMI Holdings and MACOM Technology Solutions 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.