Correlation Between NMI Holdings and Home Depot

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

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

Diversification Opportunities for NMI Holdings and Home Depot

0.51

Correlation Coefficient

NMI Holdings  Home Depot

Very weak diversification

The 3 months correlation between NMI and Home is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of NMI Holdings i.e., NMI Holdings and Home Depot go up and down completely randomly.

Pair Corralation between NMI Holdings and Home Depot

Assuming the 90 days horizon NMI Holdings is expected to generate 1.26 times more return on investment than Home Depot. However, NMI Holdings is 1.26 times more volatile than The Home Depot. It trades about 0.08 of its potential returns per unit of risk. The Home Depot is currently generating about 0.06 per unit of risk. If you would invest  2,120  in NMI Holdings on October 23, 2024 and sell it today you would earn a total of  1,520  from holding NMI Holdings or generate 71.7% return on investment over 90 days.

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

NMI Holdings  vs.  The Home Depot

NMI Holdings

Risk-Adjusted Performance

0 of 100

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.

Home Depot

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NMI Holdings and Home Depot

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

The idea behind NMI Holdings and The Home Depot 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.