Correlation Between NMI Holdings and Sandfire Resources

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

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

Diversification Opportunities for NMI Holdings and Sandfire Resources

0.13

Correlation Coefficient

NMI Holdings  Sandfire Resources

Average diversification

The 3 months correlation between NMI and Sandfire is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Sandfire Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandfire Resources 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 Sandfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandfire Resources has no effect on the direction of NMI Holdings i.e., NMI Holdings and Sandfire Resources go up and down completely randomly.

Pair Corralation between NMI Holdings and Sandfire Resources

Assuming the 90 days horizon NMI Holdings is expected to generate 0.77 times more return on investment than Sandfire Resources. However, NMI Holdings is 1.3 times less risky than Sandfire Resources. It trades about 0.06 of its potential returns per unit of risk. Sandfire Resources Limited is currently generating about -0.18 per unit of risk. If you would invest  3,540  in NMI Holdings on September 20, 2024 and sell it today you would earn a total of  60.00  from holding NMI Holdings or generate 1.69% 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.  Sandfire Resources Limited

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.

Sandfire Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sandfire Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NMI Holdings and Sandfire Resources

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

The idea behind NMI Holdings and Sandfire Resources Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.