Correlation Between NMI Holdings and CITIC

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

By analyzing existing cross correlation between NMI Holdings and CITIC LTD ADR5, you can compare the effects of market volatilities on NMI Holdings and CITIC 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 CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and CITIC.

Diversification Opportunities for NMI Holdings and CITIC

0.02

Correlation Coefficient

NMI Holdings  CITIC

Significant diversification

The 3 months correlation between NMI and CITIC is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and CITIC LTD ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC LTD ADR5 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC LTD ADR5 has no effect on the direction of NMI Holdings i.e., NMI Holdings and CITIC go up and down completely randomly.

Pair Corralation between NMI Holdings and CITIC

Assuming the 90 days horizon NMI Holdings is expected to generate 0.71 times more return on investment than CITIC. However, NMI Holdings is 1.41 times less risky than CITIC. It trades about 0.07 of its potential returns per unit of risk. CITIC LTD ADR5 is currently generating about 0.03 per unit of risk. If you would invest  2,140  in NMI Holdings on October 5, 2024 and sell it today you would earn a total of  1,360  from holding NMI Holdings or generate 63.55% return on investment over 90 days.

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

NMI Holdings  vs.  CITIC LTD ADR5

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 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.

CITIC LTD ADR5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIC LTD ADR5 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NMI Holdings and CITIC

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

The idea behind NMI Holdings and CITIC LTD ADR5 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.