Correlation Between NMI Holdings and Air China

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

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

Diversification Opportunities for NMI Holdings and Air China

-0.26

Correlation Coefficient

NMI Holdings  Air China

Very good diversification

The 3 months correlation between NMI and Air is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited 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 Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of NMI Holdings i.e., NMI Holdings and Air China go up and down completely randomly.

Pair Corralation between NMI Holdings and Air China

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Air China. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 2.54 times less risky than Air China. The stock trades about -0.31 of its potential returns per unit of risk. The Air China Limited is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Air China Limited on October 4, 2024 and sell it today you would earn a total of  8.00  from holding Air China Limited or generate 14.29% 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.  Air China Limited

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.

Air China Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Air China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Air China

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

The idea behind NMI Holdings and Air China Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.