Correlation Between NMI Holdings and Rocket Internet
Can any of the company-specific risk be diversified away by investing in both NMI Holdings and Rocket Internet 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 Rocket Internet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NMI Holdings and Rocket Internet SE, you can compare the effects of market volatilities on NMI Holdings and Rocket Internet 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 Rocket Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and Rocket Internet.
Diversification Opportunities for NMI Holdings and Rocket Internet
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between NMI and Rocket is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Rocket Internet SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocket Internet SE 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 Rocket Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocket Internet SE has no effect on the direction of NMI Holdings i.e., NMI Holdings and Rocket Internet go up and down completely randomly.
Pair Corralation between NMI Holdings and Rocket Internet
Assuming the 90 days horizon NMI Holdings is expected to generate 0.83 times more return on investment than Rocket Internet. However, NMI Holdings is 1.2 times less risky than Rocket Internet. It trades about 0.09 of its potential returns per unit of risk. Rocket Internet SE is currently generating about -0.06 per unit of risk. If you would invest 2,440 in NMI Holdings on September 4, 2024 and sell it today you would earn a total of 1,320 from holding NMI Holdings or generate 54.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.74% |
| Values | Daily Returns |
NMI Holdings vs. Rocket Internet SE
Performance |
| Timeline |
| NMI Holdings |
| Rocket Internet SE |
NMI Holdings and Rocket Internet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NMI Holdings and Rocket Internet
The main advantage of trading using opposite NMI Holdings and Rocket Internet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMI Holdings position performs unexpectedly, Rocket Internet 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 Rocket Internet will offset losses from the drop in Rocket Internet's long position.| NMI Holdings vs. HYDROFARM HLD GRP | NMI Holdings vs. VIAPLAY GROUP AB | NMI Holdings vs. Titan Machinery | NMI Holdings vs. SCANSOURCE |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Rocket Internet as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Rocket Internet's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Rocket Internet's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Rocket Internet SE.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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