Correlation Between NMI Holdings and ELLINGTON FINL

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

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

Diversification Opportunities for NMI Holdings and ELLINGTON FINL

0.16

Correlation Coefficient

NMI Holdings  ELLINGTON FINL

Average diversification

The 3 months correlation between NMI and ELLINGTON is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and ELLINGTON FINL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELLINGTON FINL INC 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 ELLINGTON FINL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELLINGTON FINL INC has no effect on the direction of NMI Holdings i.e., NMI Holdings and ELLINGTON FINL go up and down completely randomly.

Pair Corralation between NMI Holdings and ELLINGTON FINL

Assuming the 90 days horizon NMI Holdings is expected to under-perform the ELLINGTON FINL. In addition to that, NMI Holdings is 1.87 times more volatile than ELLINGTON FINL INC. It trades about -0.29 of its total potential returns per unit of risk. ELLINGTON FINL INC is currently generating about 0.19 per unit of volatility. If you would invest  1,147  in ELLINGTON FINL INC on October 5, 2024 and sell it today you would earn a total of  33.00  from holding ELLINGTON FINL INC or generate 2.88% return on investment over 90 days.

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

NMI Holdings  vs.  ELLINGTON FINL INC

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.

ELLINGTON FINL INC

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days ELLINGTON FINL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, ELLINGTON FINL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NMI Holdings and ELLINGTON FINL

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

The idea behind NMI Holdings and ELLINGTON FINL INC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..