Correlation Between NMI Holdings and ABB

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

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

Diversification Opportunities for NMI Holdings and ABB

0.08

Correlation Coefficient

NMI Holdings  ABB

Significant diversification

The 3 months correlation between NMI and ABB is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of NMI Holdings i.e., NMI Holdings and ABB go up and down completely randomly.

Pair Corralation between NMI Holdings and ABB

Assuming the 90 days horizon NMI Holdings is expected to generate 1.43 times less return on investment than ABB. But when comparing it to its historical volatility, NMI Holdings is 1.15 times less risky than ABB. It trades about 0.06 of its potential returns per unit of risk. ABB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,937  in ABB on November 20, 2024 and sell it today you would earn a total of  2,463  from holding ABB or generate 83.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

NMI Holdings  vs.  ABB

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.

ABB

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, ABB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NMI Holdings and ABB

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

The idea behind NMI Holdings and ABB 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.