Correlation Between Hercules Capital and NMI Holdings

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

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

Diversification Opportunities for Hercules Capital and NMI Holdings

-0.14

Correlation Coefficient

Hercules Capital  NMI Holdings

Good diversification

The 3 months correlation between Hercules and NMI is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Capital and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Hercules Capital 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 Hercules Capital 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 Hercules Capital i.e., Hercules Capital and NMI Holdings go up and down completely randomly.

Pair Corralation between Hercules Capital and NMI Holdings

Assuming the 90 days horizon Hercules Capital is expected to generate 1.04 times more return on investment than NMI Holdings. However, Hercules Capital is 1.04 times more volatile than NMI Holdings. It trades about 0.09 of its potential returns per unit of risk. NMI Holdings is currently generating about 0.07 per unit of risk. If you would invest  1,434  in Hercules Capital on October 5, 2024 and sell it today you would earn a total of  548.00  from holding Hercules Capital or generate 38.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Hercules Capital  vs.  NMI Holdings

Hercules Capital

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Hercules Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Hercules Capital reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Hercules Capital and NMI Holdings

The main advantage of trading using opposite Hercules Capital and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hercules Capital 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 Hercules Capital 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.