Correlation Between NMI Holdings and Vale SA

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

Diversification Opportunities for NMI Holdings and Vale SA

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between NMI and Vale is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of NMI Holdings i.e., NMI Holdings and Vale SA go up and down completely randomly.

Pair Corralation between NMI Holdings and Vale SA

Assuming the 90 days horizon NMI Holdings is expected to generate 0.8 times more return on investment than Vale SA. However, NMI Holdings is 1.25 times less risky than Vale SA. It trades about 0.08 of its potential returns per unit of risk. Vale SA is currently generating about -0.04 per unit of risk. If you would invest  1,960  in NMI Holdings on October 4, 2024 and sell it today you would earn a total of  1,540  from holding NMI Holdings or generate 78.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NMI Holdings  vs.  Vale SA

 Performance 
       Timeline  
NMI Holdings 

Risk-Adjusted Performance

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Weak
 
Strong
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.
Vale SA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Vale SA 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 essential 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.

NMI Holdings and Vale SA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NMI Holdings and Vale SA

The main advantage of trading using opposite NMI Holdings and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMI Holdings position performs unexpectedly, Vale 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 Vale SA will offset losses from the drop in Vale SA's long position.
The idea behind NMI Holdings and Vale 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.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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