Correlation Between Ambac Financial and NMI Holdings

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

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

Diversification Opportunities for Ambac Financial and NMI Holdings

-0.33

Correlation Coefficient

Ambac Financial  NMI Holdings

Very good diversification

The 3 months correlation between Ambac and NMI is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ambac Financial Group and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Ambac Financial 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 Ambac Financial 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 Ambac Financial i.e., Ambac Financial and NMI Holdings go up and down completely randomly.

Pair Corralation between Ambac Financial and NMI Holdings

Given the investment horizon of 90 days Ambac Financial Group is expected to generate 1.34 times more return on investment than NMI Holdings. However, Ambac Financial is 1.34 times more volatile than NMI Holdings. It trades about 0.07 of its potential returns per unit of risk. NMI Holdings is currently generating about -0.02 per unit of risk. If you would invest  1,170  in Ambac Financial Group on August 30, 2024 and sell it today you would earn a total of  100.00  from holding Ambac Financial Group or generate 8.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Ambac Financial Group  vs.  NMI Holdings

Ambac Financial Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ambac Financial Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Ambac Financial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

NMI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, NMI Holdings is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Ambac Financial and NMI Holdings

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

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 Transaction History module to view history of all your transactions and understand their impact on performance.