Correlation Between NMI Holdings and 3M

Can any of the company-specific risk be diversified away by investing in both NMI Holdings and 3M 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 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NMI Holdings and 3M Company, you can compare the effects of market volatilities on NMI Holdings and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and 3M.

Diversification Opportunities for NMI Holdings and 3M

0.33

Correlation Coefficient

NMI Holdings  3M

Weak diversification

The 3 months correlation between NMI and 3M is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of NMI Holdings i.e., NMI Holdings and 3M go up and down completely randomly.

Pair Corralation between NMI Holdings and 3M

Assuming the 90 days horizon NMI Holdings is expected to generate 0.77 times more return on investment than 3M. However, NMI Holdings is 1.3 times less risky than 3M. It trades about 0.07 of its potential returns per unit of risk. 3M Company is currently generating about 0.04 per unit of risk. If you would invest  2,140  in NMI Holdings on October 5, 2024 and sell it today you would earn a total of  1,360  from holding NMI Holdings or generate 63.55% 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.  3M 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 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.

3M Company

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, 3M is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NMI Holdings and 3M

The main advantage of trading using opposite NMI Holdings and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMI Holdings position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.

The idea behind NMI Holdings and 3M 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.