Correlation Between NMI Holdings and State Street

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

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

Diversification Opportunities for NMI Holdings and State Street

-0.23

Correlation Coefficient

NMI Holdings  State Street

Very good diversification

The 3 months correlation between NMI and State is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street has no effect on the direction of NMI Holdings i.e., NMI Holdings and State Street go up and down completely randomly.

Pair Corralation between NMI Holdings and State Street

Assuming the 90 days horizon NMI Holdings is expected to generate 1.14 times less return on investment than State Street. In addition to that, NMI Holdings is 1.16 times more volatile than State Street. It trades about 0.08 of its total potential returns per unit of risk. State Street is currently generating about 0.11 per unit of volatility. If you would invest  6,672  in State Street on October 10, 2024 and sell it today you would earn a total of  2,762  from holding State Street or generate 41.4% 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.  State Street

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.

State Street

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, State Street reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMI Holdings and State Street

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

The idea behind NMI Holdings and State Street 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.