Correlation Between Microsoft and NMI Holdings

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

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

Diversification Opportunities for Microsoft and NMI Holdings

-0.18

Correlation Coefficient

Microsoft  NMI Holdings

Good diversification

The 3 months correlation between Microsoft and NMI is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and NMI Holdings go up and down completely randomly.

Pair Corralation between Microsoft and NMI Holdings

Assuming the 90 days horizon Microsoft is expected to generate 1.08 times less return on investment than NMI Holdings. But when comparing it to its historical volatility, Microsoft is 1.11 times less risky than NMI Holdings. It trades about 0.1 of its potential returns per unit of risk. NMI Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,880  in NMI Holdings on August 31, 2024 and sell it today you would earn a total of  1,900  from holding NMI Holdings or generate 101.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Microsoft  vs.  NMI Holdings

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 Microsoft and NMI Holdings

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

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.