Correlation Between Sterling Construction and NMI Holdings

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

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

Diversification Opportunities for Sterling Construction and NMI Holdings

0.07

Correlation Coefficient

Sterling Construction  NMI Holdings

Significant diversification

The 3 months correlation between Sterling and NMI is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Sterling Construction 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 Sterling Construction 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 Sterling Construction i.e., Sterling Construction and NMI Holdings go up and down completely randomly.

Pair Corralation between Sterling Construction and NMI Holdings

Assuming the 90 days horizon Sterling Construction is expected to generate 1.85 times more return on investment than NMI Holdings. However, Sterling Construction is 1.85 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 0.0 per unit of risk. If you would invest  11,395  in Sterling Construction on September 13, 2024 and sell it today you would earn a total of  5,940  from holding Sterling Construction or generate 52.13% return on investment over 90 days.

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

Sterling Construction  vs.  NMI Holdings

Sterling Construction

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sterling Construction 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sterling Construction and NMI Holdings

The main advantage of trading using opposite Sterling Construction and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Construction 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 Sterling Construction 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.