Correlation Between WATSCO INC and NMI Holdings
Can any of the company-specific risk be diversified away by investing in both WATSCO INC 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 WATSCO INC and NMI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WATSCO INC B and NMI Holdings, you can compare the effects of market volatilities on WATSCO INC 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 WATSCO INC with a short position of NMI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of WATSCO INC and NMI Holdings.
Diversification Opportunities for WATSCO INC and NMI Holdings
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between WATSCO and NMI is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding WATSCO INC B and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and WATSCO INC 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 WATSCO INC B 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 WATSCO INC i.e., WATSCO INC and NMI Holdings go up and down completely randomly.
Pair Corralation between WATSCO INC and NMI Holdings
Assuming the 90 days trading horizon WATSCO INC is expected to generate 1.12 times less return on investment than NMI Holdings. In addition to that, WATSCO INC is 1.45 times more volatile than NMI Holdings. It trades about 0.06 of its total potential returns per unit of risk. NMI Holdings is currently generating about 0.09 per unit of volatility. If you would invest 1,900 in NMI Holdings on September 3, 2024 and sell it today you would earn a total of 1,860 from holding NMI Holdings or generate 97.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
WATSCO INC B vs. NMI Holdings
Performance |
| Timeline |
| WATSCO INC B |
| NMI Holdings |
WATSCO INC and NMI Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WATSCO INC and NMI Holdings
The main advantage of trading using opposite WATSCO INC and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WATSCO INC 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.| WATSCO INC vs. Apollo Medical Holdings | WATSCO INC vs. AVITA Medical | WATSCO INC vs. CVS Health | WATSCO INC vs. ScanSource |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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