Correlation Between NMI Holdings and Cardinal Health

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

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

Diversification Opportunities for NMI Holdings and Cardinal Health

-0.18

Correlation Coefficient

NMI Holdings  Cardinal Health

Good diversification

The 3 months correlation between NMI and Cardinal is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health 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 Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of NMI Holdings i.e., NMI Holdings and Cardinal Health go up and down completely randomly.

Pair Corralation between NMI Holdings and Cardinal Health

Assuming the 90 days horizon NMI Holdings is expected to generate 4.87 times less return on investment than Cardinal Health. But when comparing it to its historical volatility, NMI Holdings is 1.04 times less risky than Cardinal Health. It trades about 0.02 of its potential returns per unit of risk. Cardinal Health is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  10,316  in Cardinal Health on September 3, 2024 and sell it today you would earn a total of  1,254  from holding Cardinal Health or generate 12.16% return on investment over 90 days.

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

NMI Holdings  vs.  Cardinal Health

NMI Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMI Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Cardinal Health

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NMI Holdings and Cardinal Health

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

The idea behind NMI Holdings and Cardinal Health 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.