Correlation Between NMI Holdings and Rocket Internet

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

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

Diversification Opportunities for NMI Holdings and Rocket Internet

-0.53

Correlation Coefficient

NMI Holdings  Rocket Internet

Excellent diversification

The 3 months correlation between NMI and Rocket is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Rocket Internet SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocket Internet SE 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 Rocket Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocket Internet SE has no effect on the direction of NMI Holdings i.e., NMI Holdings and Rocket Internet go up and down completely randomly.

Pair Corralation between NMI Holdings and Rocket Internet

Assuming the 90 days horizon NMI Holdings is expected to under-perform the Rocket Internet. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.42 times less risky than Rocket Internet. The stock trades about -0.04 of its potential returns per unit of risk. The Rocket Internet SE is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Rocket Internet SE on December 29, 2024 and sell it today you would lose (10.00) from holding Rocket Internet SE or give up 0.62% of portfolio value over 90 days.

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

NMI Holdings  vs.  Rocket Internet SE

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Rocket Internet SE

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocket Internet SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Rocket Internet is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NMI Holdings and Rocket Internet

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

The idea behind NMI Holdings and Rocket Internet SE 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.