Correlation Between NMI Holdings and Hufvudstaden

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

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

Diversification Opportunities for NMI Holdings and Hufvudstaden

-0.08

Correlation Coefficient

NMI Holdings  Hufvudstaden

Good diversification

The 3 months correlation between NMI and Hufvudstaden is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Hufvudstaden AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hufvudstaden AB 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 Hufvudstaden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hufvudstaden AB has no effect on the direction of NMI Holdings i.e., NMI Holdings and Hufvudstaden go up and down completely randomly.

Pair Corralation between NMI Holdings and Hufvudstaden

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Hufvudstaden. In addition to that, NMI Holdings is 1.14 times more volatile than Hufvudstaden AB. It trades about -0.08 of its total potential returns per unit of risk. Hufvudstaden AB is currently generating about 0.03 per unit of volatility. If you would invest  1,009  in Hufvudstaden AB on December 22, 2024 and sell it today you would earn a total of  20.00  from holding Hufvudstaden AB or generate 1.98% 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.  Hufvudstaden AB

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 unfluctuating 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.

Hufvudstaden AB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hufvudstaden AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hufvudstaden 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 Hufvudstaden

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

The idea behind NMI Holdings and Hufvudstaden AB 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.