Correlation Between NMI Holdings and BlueScope Steel

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

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

Diversification Opportunities for NMI Holdings and BlueScope Steel

0.65

Correlation Coefficient

NMI Holdings  BlueScope Steel

Poor diversification

The 3 months correlation between NMI and BlueScope is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel 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 BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of NMI Holdings i.e., NMI Holdings and BlueScope Steel go up and down completely randomly.

Pair Corralation between NMI Holdings and BlueScope Steel

Assuming the 90 days horizon NMI Holdings is expected to generate 0.79 times more return on investment than BlueScope Steel. However, NMI Holdings is 1.26 times less risky than BlueScope Steel. It trades about 0.08 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.02 per unit of risk. If you would invest  2,360  in NMI Holdings on October 24, 2024 and sell it today you would earn a total of  1,280  from holding NMI Holdings or generate 54.24% return on investment over 90 days.

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

NMI Holdings  vs.  BlueScope Steel 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.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BlueScope Steel 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 BlueScope Steel

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

The idea behind NMI Holdings and BlueScope Steel 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.