Correlation Between Assured Guaranty and NMI Holdings

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

By analyzing existing cross correlation between Assured Guaranty and NMI Holdings, you can compare the effects of market volatilities on Assured Guaranty and NMI Holdings 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 Assured Guaranty with a short position of NMI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assured Guaranty and NMI Holdings.

Diversification Opportunities for Assured Guaranty and NMI Holdings

0.59

Correlation Coefficient

Assured Guaranty  NMI Holdings

Very weak diversification

The 3 months correlation between Assured and NMI is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Assured Guaranty 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 Assured Guaranty are associated (or correlated) with NMI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMI Holdings has no effect on the direction of Assured Guaranty i.e., Assured Guaranty and NMI Holdings go up and down completely randomly.

Pair Corralation between Assured Guaranty and NMI Holdings

Considering the 90-day investment horizon Assured Guaranty is expected to generate 0.79 times more return on investment than NMI Holdings. However, Assured Guaranty is 1.27 times less risky than NMI Holdings. It trades about -0.01 of its potential returns per unit of risk. NMI Holdings is currently generating about -0.11 per unit of risk. If you would invest  9,328  in Assured Guaranty on November 28, 2024 and sell it today you would lose (116.00) from holding Assured Guaranty or give up 1.24% of portfolio value over 90 days.

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

Assured Guaranty  vs.  NMI Holdings

Assured Guaranty

Risk-Adjusted Performance

Very Weak

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

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 fragile performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Assured Guaranty and NMI Holdings

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

The idea behind Assured Guaranty and NMI Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .