Correlation Between NMI Holdings and Assured Guaranty

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

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

Diversification Opportunities for NMI Holdings and Assured Guaranty

-0.53

Correlation Coefficient

NMI Holdings  Assured Guaranty

Excellent diversification

The 3 months correlation between NMI and Assured is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty and NMI 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 NMI Holdings are associated (or correlated) with Assured Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Assured Guaranty has no effect on the direction of NMI Holdings i.e., NMI Holdings and Assured Guaranty go up and down completely randomly.

Pair Corralation between NMI Holdings and Assured Guaranty

Given the investment horizon of 90 days NMI Holdings is expected to under-perform the Assured Guaranty. But the stock apears to be less risky and, when comparing its historical volatility, NMI Holdings is 1.07 times less risky than Assured Guaranty. The stock trades about -0.02 of its potential returns per unit of risk. The Assured Guaranty is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,008  in Assured Guaranty on August 30, 2024 and sell it today you would earn a total of  1,333  from holding Assured Guaranty or generate 16.65% return on investment over 90 days.

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

NMI Holdings  vs.  Assured Guaranty

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.

Assured Guaranty

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Assured Guaranty displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and Assured Guaranty

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

The idea behind NMI Holdings and Assured Guaranty 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.