Correlation Between NMI Holdings and China Railway

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

Diversification Opportunities for NMI Holdings and China Railway

-0.12

Correlation Coefficient

NMI Holdings  China Railway

Good diversification

The 3 months correlation between NMI and China is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group 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 Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Group has no effect on the direction of NMI Holdings i.e., NMI Holdings and China Railway go up and down completely randomly.

Pair Corralation between NMI Holdings and China Railway

Assuming the 90 days horizon NMI Holdings is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.26 times less risky than China Railway. The stock trades about -0.09 of its potential returns per unit of risk. The China Railway Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  48.00  in China Railway Group on December 25, 2024 and sell it today you would lose (2.00) from holding China Railway Group or give up 4.17% of portfolio value over 90 days.

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

NMI Holdings  vs.  China Railway Group

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 fragile 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.

China Railway Group

Risk-Adjusted Performance

Very Weak

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

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

The idea behind NMI Holdings and China Railway Group 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.