Correlation Between NMI Holdings and Highlight Communications

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

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

Diversification Opportunities for NMI Holdings and Highlight Communications

0.65

Correlation Coefficient

NMI Holdings  Highlight Communications

Poor diversification

The 3 months correlation between NMI and Highlight is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of NMI Holdings i.e., NMI Holdings and Highlight Communications go up and down completely randomly.

Pair Corralation between NMI Holdings and Highlight Communications

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Highlight Communications. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 3.11 times less risky than Highlight Communications. The stock trades about -0.03 of its potential returns per unit of risk. The Highlight Communications AG is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Highlight Communications AG on December 30, 2024 and sell it today you would earn a total of  9.00  from holding Highlight Communications AG or generate 7.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NMI Holdings  vs.  Highlight Communications AG

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 nearly stable basic indicators, NMI Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Highlight Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Highlight Communications

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

The idea behind NMI Holdings and Highlight Communications AG 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.