Correlation Between Federal Home and NMI Holdings

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

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

Diversification Opportunities for Federal Home and NMI Holdings

-0.07

Correlation Coefficient

Federal Home  NMI Holdings

Good diversification

The 3 months correlation between Federal and NMI is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Federal Home 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 Federal Home Loan are associated (or correlated) with NMI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMI Holdings has no effect on the direction of Federal Home i.e., Federal Home and NMI Holdings go up and down completely randomly.

Pair Corralation between Federal Home and NMI Holdings

Assuming the 90 days horizon Federal Home Loan is expected to generate 4.42 times more return on investment than NMI Holdings. However, Federal Home is 4.42 times more volatile than NMI Holdings. It trades about 0.21 of its potential returns per unit of risk. NMI Holdings is currently generating about -0.04 per unit of risk. If you would invest  102.00  in Federal Home Loan on October 4, 2024 and sell it today you would earn a total of  134.00  from holding Federal Home Loan or generate 131.37% return on investment over 90 days.

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

Federal Home Loan  vs.  NMI Holdings

Federal Home Loan

Risk-Adjusted Performance

16 of 100

Solid

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

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.

Pair Trading with Federal Home and NMI Holdings

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

The idea behind Federal Home Loan and NMI Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.