Correlation Between NMI Holdings and American Homes
Can any of the company-specific risk be diversified away by investing in both NMI Holdings and American Homes 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 American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NMI Holdings and American Homes 4, you can compare the effects of market volatilities on NMI Holdings and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMI Holdings and American Homes.
Diversification Opportunities for NMI Holdings and American Homes
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between NMI and American is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of NMI Holdings i.e., NMI Holdings and American Homes go up and down completely randomly.
Pair Corralation between NMI Holdings and American Homes
Assuming the 90 days horizon NMI Holdings is expected to generate 0.95 times more return on investment than American Homes. However, NMI Holdings is 1.06 times less risky than American Homes. It trades about 0.08 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.03 per unit of risk. If you would invest 1,940 in NMI Holdings on August 24, 2024 and sell it today you would earn a total of 1,600 from holding NMI Holdings or generate 82.47% 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. American Homes 4
Performance |
| Timeline |
| NMI Holdings |
| American Homes 4 |
NMI Holdings and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NMI Holdings and American Homes
The main advantage of trading using opposite NMI Holdings and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMI Holdings position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.| NMI Holdings vs. Lion One Metals | NMI Holdings vs. Harmony Gold Mining | NMI Holdings vs. OFFICE DEPOT | NMI Holdings vs. JAPAN TOBACCO UNSPADR12 |
| American Homes vs. Equity Residential | American Homes vs. INVITATION HOMES DL | American Homes vs. Superior Plus Corp | American Homes vs. NMI Holdings |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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