Correlation Between NMI Holdings and China Resources

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

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

Diversification Opportunities for NMI Holdings and China Resources

-0.06

Correlation Coefficient

NMI Holdings  China Resources

Good diversification

The 3 months correlation between NMI and China is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and China Resources Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Beer 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Beer has no effect on the direction of NMI Holdings i.e., NMI Holdings and China Resources go up and down completely randomly.

Pair Corralation between NMI Holdings and China Resources

Assuming the 90 days horizon NMI Holdings is expected to generate 14.86 times less return on investment than China Resources. But when comparing it to its historical volatility, NMI Holdings is 2.79 times less risky than China Resources. It trades about 0.02 of its potential returns per unit of risk. China Resources Beer is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  229.00  in China Resources Beer on September 2, 2024 and sell it today you would earn a total of  83.00  from holding China Resources Beer or generate 36.24% 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.  China Resources Beer

NMI Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMI Holdings are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Resources Beer

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and China Resources

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

The idea behind NMI Holdings and China Resources Beer 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.