Correlation Between NMI Holdings and CF Industries

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

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

Diversification Opportunities for NMI Holdings and CF Industries

0.28

Correlation Coefficient

NMI Holdings  CF Industries

Modest diversification

The 3 months correlation between NMI and C4F is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of NMI Holdings i.e., NMI Holdings and CF Industries go up and down completely randomly.

Pair Corralation between NMI Holdings and CF Industries

Assuming the 90 days horizon NMI Holdings is expected to generate 0.84 times more return on investment than CF Industries. However, NMI Holdings is 1.19 times less risky than CF Industries. It trades about 0.09 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.02 per unit of risk. If you would invest  1,880  in NMI Holdings on October 9, 2024 and sell it today you would earn a total of  1,680  from holding NMI Holdings or generate 89.36% return on investment over 90 days.

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

NMI Holdings  vs.  CF Industries Holdings

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.

CF Industries Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CF Industries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NMI Holdings and CF Industries

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

The idea behind NMI Holdings and CF Industries 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.