Correlation Between NMI Holdings and RELX PLC

Can any of the company-specific risk be diversified away by investing in both NMI Holdings and RELX 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 RELX 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 RELX PLC, you can compare the effects of market volatilities on NMI Holdings and RELX 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 RELX PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and RELX PLC.

Diversification Opportunities for NMI Holdings and RELX PLC

0.3

Correlation Coefficient

NMI Holdings  RELX PLC

Weak diversification

The 3 months correlation between NMI and RELX is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and RELX PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RELX 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 RELX PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RELX PLC has no effect on the direction of NMI Holdings i.e., NMI Holdings and RELX PLC go up and down completely randomly.

Pair Corralation between NMI Holdings and RELX PLC

Assuming the 90 days horizon NMI Holdings is expected to under-perform the RELX PLC. In addition to that, NMI Holdings is 1.29 times more volatile than RELX PLC. It trades about -0.09 of its total potential returns per unit of risk. RELX PLC is currently generating about 0.03 per unit of volatility. If you would invest  4,414  in RELX PLC on December 19, 2024 and sell it today you would earn a total of  72.00  from holding RELX PLC or generate 1.63% return on investment over 90 days.

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

NMI Holdings  vs.  RELX PLC

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 uncertain 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.

RELX PLC

Risk-Adjusted Performance

Weak

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

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

The idea behind NMI Holdings and RELX 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.