Correlation Between NMI Holdings and Air Lease

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

Diversification Opportunities for NMI Holdings and Air Lease

0.31

Correlation Coefficient

NMI Holdings  Air Lease

Weak diversification

The 3 months correlation between NMI and Air is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease 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 Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of NMI Holdings i.e., NMI Holdings and Air Lease go up and down completely randomly.

Pair Corralation between NMI Holdings and Air Lease

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Air Lease. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.25 times less risky than Air Lease. The stock trades about -0.06 of its potential returns per unit of risk. The Air Lease is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,638  in Air Lease on December 27, 2024 and sell it today you would lose (138.00) from holding Air Lease or give up 2.98% of portfolio value over 90 days.

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

NMI Holdings  vs.  Air Lease

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Air Lease

Risk-Adjusted Performance

Very Weak

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

Pair Trading with NMI Holdings and Air Lease

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

The idea behind NMI Holdings and Air Lease 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.