Correlation Between Group 1 and NI Holdings

Can any of the company-specific risk be diversified away by investing in both Group 1 and NI 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 Group 1 and NI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Group 1 Automotive and NI Holdings, you can compare the effects of market volatilities on Group 1 and NI 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 Group 1 with a short position of NI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Group 1 and NI Holdings.

Diversification Opportunities for Group 1 and NI Holdings

0.51

Correlation Coefficient

Group 1  NI Holdings

Very weak diversification

The 3 months correlation between Group and NODK is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Group 1 Automotive and NI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NI Holdings and Group 1 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 Group 1 Automotive are associated (or correlated) with NI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NI Holdings has no effect on the direction of Group 1 i.e., Group 1 and NI Holdings go up and down completely randomly.

Pair Corralation between Group 1 and NI Holdings

Considering the 90-day investment horizon Group 1 Automotive is expected to generate 0.74 times more return on investment than NI Holdings. However, Group 1 Automotive is 1.35 times less risky than NI Holdings. It trades about -0.04 of its potential returns per unit of risk. NI Holdings is currently generating about -0.41 per unit of risk. If you would invest  42,456  in Group 1 Automotive on October 11, 2024 and sell it today you would lose (386.00) from holding Group 1 Automotive or give up 0.91% of portfolio value over 90 days.

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

Group 1 Automotive  vs.  NI Holdings

Group 1 Automotive

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, NI Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Group 1 and NI Holdings

The main advantage of trading using opposite Group 1 and NI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Group 1 position performs unexpectedly, NI 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 NI Holdings will offset losses from the drop in NI Holdings' long position.

The idea behind Group 1 Automotive and NI 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.