Correlation Between NMI Holdings and Meta Platforms

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

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

Diversification Opportunities for NMI Holdings and Meta Platforms

0.0

Correlation Coefficient

NMI Holdings  Meta Platforms

Pay attention - limited upside

The 3 months correlation between NMI and Meta is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of NMI Holdings i.e., NMI Holdings and Meta Platforms go up and down completely randomly.

Pair Corralation between NMI Holdings and Meta Platforms

Assuming the 90 days horizon NMI Holdings is expected to generate 2.16 times less return on investment than Meta Platforms. But when comparing it to its historical volatility, NMI Holdings is 1.53 times less risky than Meta Platforms. It trades about 0.08 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  30,026  in Meta Platforms on October 5, 2024 and sell it today you would earn a total of  26,794  from holding Meta Platforms or generate 89.24% return on investment over 90 days.

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

NMI Holdings  vs.  Meta Platforms

NMI Holdings

Risk-Adjusted Performance

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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.

Meta Platforms

Risk-Adjusted Performance

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Modest

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

Pair Trading with NMI Holdings and Meta Platforms

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

The idea behind NMI Holdings and Meta Platforms 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.