Correlation Between NI Holdings and South Plains

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

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

Diversification Opportunities for NI Holdings and South Plains

0.71

Correlation Coefficient

NI Holdings  South Plains

Poor diversification

The 3 months correlation between NODK and South is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains Financial and NI 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 NI Holdings are associated (or correlated) with South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of NI Holdings i.e., NI Holdings and South Plains go up and down completely randomly.

Pair Corralation between NI Holdings and South Plains

Given the investment horizon of 90 days NI Holdings is expected to generate 1.09 times more return on investment than South Plains. However, NI Holdings is 1.09 times more volatile than South Plains Financial. It trades about 0.18 of its potential returns per unit of risk. South Plains Financial is currently generating about -0.01 per unit of risk. If you would invest  1,574  in NI Holdings on September 16, 2024 and sell it today you would earn a total of  94.00  from holding NI Holdings or generate 5.97% return on investment over 90 days.

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

NI Holdings  vs.  South Plains Financial

NI Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NI Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, NI Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

South Plains Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Plains Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, South Plains demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NI Holdings and South Plains

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

The idea behind NI Holdings and South Plains Financial 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.