Correlation Between NMI Holdings and Restaurant Brands

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

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

Diversification Opportunities for NMI Holdings and Restaurant Brands

0.54

Correlation Coefficient

NMI Holdings  Restaurant Brands

Very weak diversification

The 3 months correlation between NMI and Restaurant is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of NMI Holdings i.e., NMI Holdings and Restaurant Brands go up and down completely randomly.

Pair Corralation between NMI Holdings and Restaurant Brands

Assuming the 90 days horizon NMI Holdings is expected to generate 1.2 times more return on investment than Restaurant Brands. However, NMI Holdings is 1.2 times more volatile than Restaurant Brands International. It trades about 0.08 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.02 per unit of risk. If you would invest  2,040  in NMI Holdings on October 11, 2024 and sell it today you would earn a total of  1,520  from holding NMI Holdings or generate 74.51% return on investment over 90 days.

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

NMI Holdings  vs.  Restaurant Brands Internationa

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 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.

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Restaurant Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NMI Holdings and Restaurant Brands

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

The idea behind NMI Holdings and Restaurant Brands International 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.