Correlation Between NMI Holdings and Penta Ocean

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

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

Diversification Opportunities for NMI Holdings and Penta Ocean

-0.72

Correlation Coefficient

NMI Holdings  Penta Ocean

Pay attention - limited upside

The 3 months correlation between NMI and Penta is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Penta Ocean Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penta Ocean Construc 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 Penta Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penta Ocean Construc has no effect on the direction of NMI Holdings i.e., NMI Holdings and Penta Ocean go up and down completely randomly.

Pair Corralation between NMI Holdings and Penta Ocean

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Penta Ocean. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.34 times less risky than Penta Ocean. The stock trades about -0.03 of its potential returns per unit of risk. The Penta Ocean Construction Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  385.00  in Penta Ocean Construction Co on December 30, 2024 and sell it today you would earn a total of  59.00  from holding Penta Ocean Construction Co or generate 15.32% return on investment over 90 days.

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

NMI Holdings  vs.  Penta Ocean Construction Co

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.

Penta Ocean Construc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Penta Ocean reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Penta Ocean

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

The idea behind NMI Holdings and Penta Ocean Construction Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .