Correlation Between NMI Holdings and Hon Hai

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

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

Diversification Opportunities for NMI Holdings and Hon Hai

-0.12

Correlation Coefficient

NMI Holdings  Hon Hai

Good diversification

The 3 months correlation between NMI and Hon is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision 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 Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of NMI Holdings i.e., NMI Holdings and Hon Hai go up and down completely randomly.

Pair Corralation between NMI Holdings and Hon Hai

Assuming the 90 days horizon NMI Holdings is expected to generate 2.4 times less return on investment than Hon Hai. But when comparing it to its historical volatility, NMI Holdings is 2.32 times less risky than Hon Hai. It trades about 0.08 of its potential returns per unit of risk. Hon Hai Precision is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  560.00  in Hon Hai Precision on October 5, 2024 and sell it today you would earn a total of  480.00  from holding Hon Hai Precision or generate 85.71% 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.  Hon Hai Precision

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.

Hon Hai Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hon Hai Precision has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hon Hai is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NMI Holdings and Hon Hai

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

The idea behind NMI Holdings and Hon Hai Precision 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.