Correlation Between NMI Holdings and Commonwealth Bank

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

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

Diversification Opportunities for NMI Holdings and Commonwealth Bank

-0.06

Correlation Coefficient

NMI Holdings  Commonwealth Bank

Good diversification

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

Pair Corralation between NMI Holdings and Commonwealth Bank

Assuming the 90 days horizon NMI Holdings is expected to generate 1.39 times less return on investment than Commonwealth Bank. In addition to that, NMI Holdings is 1.13 times more volatile than Commonwealth Bank of. It trades about 0.08 of its total potential returns per unit of risk. Commonwealth Bank of is currently generating about 0.12 per unit of volatility. If you would invest  5,768  in Commonwealth Bank of on October 5, 2024 and sell it today you would earn a total of  3,411  from holding Commonwealth Bank of or generate 59.14% 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.  Commonwealth Bank of

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 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.

Commonwealth Bank

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Commonwealth Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NMI Holdings and Commonwealth Bank

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

The idea behind NMI Holdings and Commonwealth Bank of 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.