Correlation Between NMI Holdings and Align Technology

Can any of the company-specific risk be diversified away by investing in both NMI Holdings and Align 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 Align 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 Align Technology, you can compare the effects of market volatilities on NMI Holdings and Align 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 Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and Align Technology.

Diversification Opportunities for NMI Holdings and Align Technology

0.29

Correlation Coefficient

NMI Holdings  Align Technology

Modest diversification

The 3 months correlation between NMI and Align is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology 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 Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of NMI Holdings i.e., NMI Holdings and Align Technology go up and down completely randomly.

Pair Corralation between NMI Holdings and Align Technology

Assuming the 90 days horizon NMI Holdings is expected to generate 0.66 times more return on investment than Align Technology. However, NMI Holdings is 1.51 times less risky than Align Technology. It trades about 0.11 of its potential returns per unit of risk. Align Technology is currently generating about -0.02 per unit of risk. If you would invest  3,060  in NMI Holdings on August 31, 2024 and sell it today you would earn a total of  720.00  from holding NMI Holdings or generate 23.53% 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.  Align Technology

NMI Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMI Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Align Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Align Technology 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 Align Technology

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

The idea behind NMI Holdings and Align Technology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.