Correlation Between NMI Holdings and Dollar Tree

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

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

Diversification Opportunities for NMI Holdings and Dollar Tree

0.25

Correlation Coefficient

NMI Holdings  Dollar Tree

Modest diversification

The 3 months correlation between NMI and Dollar is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Dollar Tree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar Tree 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 Dollar Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar Tree has no effect on the direction of NMI Holdings i.e., NMI Holdings and Dollar Tree go up and down completely randomly.

Pair Corralation between NMI Holdings and Dollar Tree

Assuming the 90 days horizon NMI Holdings is expected to generate 0.62 times more return on investment than Dollar Tree. However, NMI Holdings is 1.62 times less risky than Dollar Tree. It trades about 0.08 of its potential returns per unit of risk. Dollar Tree is currently generating about -0.04 per unit of risk. If you would invest  2,040  in NMI Holdings on October 5, 2024 and sell it today you would earn a total of  1,460  from holding NMI Holdings or generate 71.57% 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.  Dollar Tree

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.

Dollar Tree

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with NMI Holdings and Dollar Tree

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

The idea behind NMI Holdings and Dollar Tree 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.