Correlation Between NMI Holdings and Pearson Plc

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

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

Diversification Opportunities for NMI Holdings and Pearson Plc

-0.36

Correlation Coefficient

NMI Holdings  Pearson Plc

Very good diversification

The 3 months correlation between NMI and Pearson is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Pearson plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson plc 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 Pearson Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson plc has no effect on the direction of NMI Holdings i.e., NMI Holdings and Pearson Plc go up and down completely randomly.

Pair Corralation between NMI Holdings and Pearson Plc

Assuming the 90 days horizon NMI Holdings is expected to generate 1.0 times more return on investment than Pearson Plc. However, NMI Holdings is 1.0 times more volatile than Pearson plc. It trades about 0.08 of its potential returns per unit of risk. Pearson plc is currently generating about 0.06 per unit of risk. If you would invest  2,000  in NMI Holdings on October 10, 2024 and sell it today you would earn a total of  1,560  from holding NMI Holdings or generate 78.0% 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.  Pearson plc

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.

Pearson plc

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson plc are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Pearson Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Pearson Plc

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

The idea behind NMI Holdings and Pearson plc 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.