Correlation Between NMI Holdings and Danone SA

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

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

Diversification Opportunities for NMI Holdings and Danone SA

-0.7

Correlation Coefficient

NMI Holdings  Danone SA

Excellent diversification

The 3 months correlation between NMI and Danone is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of NMI Holdings i.e., NMI Holdings and Danone SA go up and down completely randomly.

Pair Corralation between NMI Holdings and Danone SA

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Danone SA. In addition to that, NMI Holdings is 1.32 times more volatile than Danone SA. It trades about -0.04 of its total potential returns per unit of risk. Danone SA is currently generating about 0.11 per unit of volatility. If you would invest  6,484  in Danone SA on December 28, 2024 and sell it today you would earn a total of  530.00  from holding Danone SA or generate 8.17% return on investment over 90 days.

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

NMI Holdings  vs.  Danone SA

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.

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NMI Holdings and Danone SA

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

The idea behind NMI Holdings and Danone SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.