Correlation Between Insurance Australia and NMI Holdings
Can any of the company-specific risk be diversified away by investing in both Insurance Australia 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 Insurance Australia and NMI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insurance Australia Group and NMI Holdings, you can compare the effects of market volatilities on Insurance Australia 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 Insurance Australia with a short position of NMI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and NMI Holdings.
Diversification Opportunities for Insurance Australia and NMI Holdings
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Insurance and NMI is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Insurance Australia 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 Insurance Australia 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 Insurance Australia i.e., Insurance Australia and NMI Holdings go up and down completely randomly.
Pair Corralation between Insurance Australia and NMI Holdings
Assuming the 90 days horizon Insurance Australia Group is expected to generate 0.88 times more return on investment than NMI Holdings. However, Insurance Australia Group is 1.13 times less risky than NMI Holdings. It trades about 0.15 of its potential returns per unit of risk. NMI Holdings is currently generating about 0.09 per unit of risk. If you would invest 425.00 in Insurance Australia Group on June 29, 2024 and sell it today you would earn a total of 17.00 from holding Insurance Australia Group or generate 4.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Insurance Australia Group vs. NMI Holdings
Performance |
Timeline |
Insurance Australia |
NMI Holdings |
Insurance Australia and NMI Holdings Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Insurance Australia and NMI Holdings
The main advantage of trading using opposite Insurance Australia and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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.Insurance Australia vs. Pentair plc | Insurance Australia vs. Altair Engineering | Insurance Australia vs. SEALED AIR | Insurance Australia vs. MOLSON RS BEVERAGE |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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