Correlation Between NMI Holdings and Palo Alto

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

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

Diversification Opportunities for NMI Holdings and Palo Alto

-0.02

Correlation Coefficient

NMI Holdings  Palo Alto

Good diversification

The 3 months correlation between NMI and Palo is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks 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 Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of NMI Holdings i.e., NMI Holdings and Palo Alto go up and down completely randomly.

Pair Corralation between NMI Holdings and Palo Alto

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Palo Alto. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.33 times less risky than Palo Alto. The stock trades about -0.31 of its potential returns per unit of risk. The Palo Alto Networks is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  18,663  in Palo Alto Networks on October 4, 2024 and sell it today you would lose (975.00) from holding Palo Alto Networks or give up 5.22% of portfolio value over 90 days.

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

NMI Holdings  vs.  Palo Alto Networks

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 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.

Palo Alto Networks

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with NMI Holdings and Palo Alto

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

The idea behind NMI Holdings and Palo Alto Networks 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.