Correlation Between NMI Holdings and Titan Machinery

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

By analyzing existing cross correlation between NMI Holdings and Titan Machinery, you can compare the effects of market volatilities on NMI Holdings and Titan Machinery 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 Titan Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and Titan Machinery.

Diversification Opportunities for NMI Holdings and Titan Machinery

0.33

Correlation Coefficient

NMI Holdings  Titan Machinery

Weak diversification

The 3 months correlation between NMI and Titan is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of NMI Holdings i.e., NMI Holdings and Titan Machinery go up and down completely randomly.

Pair Corralation between NMI Holdings and Titan Machinery

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Titan Machinery. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 2.6 times less risky than Titan Machinery. The stock trades about -0.04 of its potential returns per unit of risk. The Titan Machinery is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,310  in Titan Machinery on December 28, 2024 and sell it today you would earn a total of  340.00  from holding Titan Machinery or generate 25.95% return on investment over 90 days.

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

NMI Holdings  vs.  Titan Machinery

NMI Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NMI Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Titan Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Titan Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Titan Machinery

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

The idea behind NMI Holdings and Titan Machinery 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.