Correlation Between China Railway and NMI Holdings

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

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

Diversification Opportunities for China Railway and NMI Holdings

-0.12

Correlation Coefficient

China Railway  NMI Holdings

Good diversification

The 3 months correlation between China and NMI is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and China Railway 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 China Railway Group 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 China Railway i.e., China Railway and NMI Holdings go up and down completely randomly.

Pair Corralation between China Railway and NMI Holdings

Assuming the 90 days horizon China Railway is expected to generate 25.85 times less return on investment than NMI Holdings. In addition to that, China Railway is 1.01 times more volatile than NMI Holdings. It trades about 0.01 of its total potential returns per unit of risk. NMI Holdings is currently generating about 0.27 per unit of volatility. If you would invest  3,360  in NMI Holdings on September 4, 2024 and sell it today you would earn a total of  400.00  from holding NMI Holdings or generate 11.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

China Railway Group  vs.  NMI Holdings

China Railway Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

NMI Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMI Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with China Railway and NMI Holdings

The main advantage of trading using opposite China Railway and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway 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 China Railway Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.