Correlation Between NMI Holdings and XAAR PLC

Can any of the company-specific risk be diversified away by investing in both NMI Holdings and XAAR 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 XAAR 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 XAAR PLC LS 10, you can compare the effects of market volatilities on NMI Holdings and XAAR 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 XAAR PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and XAAR PLC.

Diversification Opportunities for NMI Holdings and XAAR PLC

0.11

Correlation Coefficient

NMI Holdings  XAAR PLC

Average diversification

The 3 months correlation between NMI and XAAR is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and XAAR PLC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XAAR PLC LS 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 XAAR PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XAAR PLC LS has no effect on the direction of NMI Holdings i.e., NMI Holdings and XAAR PLC go up and down completely randomly.

Pair Corralation between NMI Holdings and XAAR PLC

Assuming the 90 days horizon NMI Holdings is expected to generate 3.89 times less return on investment than XAAR PLC. But when comparing it to its historical volatility, NMI Holdings is 3.72 times less risky than XAAR PLC. It trades about 0.12 of its potential returns per unit of risk. XAAR PLC LS 10 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  85.00  in XAAR PLC LS 10 on October 24, 2024 and sell it today you would earn a total of  10.00  from holding XAAR PLC LS 10 or generate 11.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

NMI Holdings  vs.  XAAR PLC LS 10

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.

XAAR PLC LS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XAAR PLC LS 10 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.

Pair Trading with NMI Holdings and XAAR PLC

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

The idea behind NMI Holdings and XAAR PLC LS 10 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.