Correlation Between TransAlta and NMI Holdings

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

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

Diversification Opportunities for TransAlta and NMI Holdings

-0.13

Correlation Coefficient

TransAlta  NMI Holdings

Good diversification

The 3 months correlation between TransAlta and NMI is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding TransAlta and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and TransAlta 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 TransAlta 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 TransAlta i.e., TransAlta and NMI Holdings go up and down completely randomly.

Pair Corralation between TransAlta and NMI Holdings

Assuming the 90 days horizon TransAlta is expected to generate 1.27 times more return on investment than NMI Holdings. However, TransAlta is 1.27 times more volatile than NMI Holdings. It trades about 0.23 of its potential returns per unit of risk. NMI Holdings is currently generating about 0.13 per unit of risk. If you would invest  912.00  in TransAlta on August 31, 2024 and sell it today you would earn a total of  138.00  from holding TransAlta or generate 15.13% return on investment over 90 days.

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

TransAlta  vs.  NMI Holdings

TransAlta

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, TransAlta 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 TransAlta and NMI Holdings

The main advantage of trading using opposite TransAlta and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TransAlta 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 TransAlta 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.