Correlation Between NMI Holdings and Fastenal

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

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

Diversification Opportunities for NMI Holdings and Fastenal

-0.06

Correlation Coefficient

NMI Holdings  Fastenal

Good diversification

The 3 months correlation between NMI and Fastenal is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal 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 Fastenal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fastenal has no effect on the direction of NMI Holdings i.e., NMI Holdings and Fastenal go up and down completely randomly.

Pair Corralation between NMI Holdings and Fastenal

Assuming the 90 days horizon NMI Holdings is expected to generate 1.48 times more return on investment than Fastenal. However, NMI Holdings is 1.48 times more volatile than Fastenal Company. It trades about 0.07 of its potential returns per unit of risk. Fastenal Company is currently generating about -0.26 per unit of risk. If you would invest  3,440  in NMI Holdings on October 9, 2024 and sell it today you would earn a total of  120.00  from holding NMI Holdings or generate 3.49% 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.  Fastenal Company

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.

Fastenal

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with NMI Holdings and Fastenal

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

The idea behind NMI Holdings and Fastenal Company 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.