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 ADR, 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

0.18

Correlation Coefficient

NMI Holdings  Relx PLC

Average diversification

The 3 months correlation between NMI and Relx is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Relx PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC ADR 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 ADR 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 generate 1.37 times more return on investment than Relx PLC. However, NMI Holdings is 1.37 times more volatile than Relx PLC ADR. It trades about 0.08 of its potential returns per unit of risk. Relx PLC ADR is currently generating about 0.1 per unit of risk. If you would invest  1,970  in NMI Holdings on October 5, 2024 and sell it today you would earn a total of  1,530  from holding NMI Holdings or generate 77.66% return on investment over 90 days.

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

NMI Holdings  vs.  Relx PLC ADR

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.

Relx PLC ADR

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Relx PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile technical and fundamental indicators, Relx PLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 ADR 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.