Correlation Between Essent and NMI Holdings
Can any of the company-specific risk be diversified away by investing in both Essent 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 Essent and NMI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Essent Group and NMI Holdings, you can compare the effects of market volatilities on Essent 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 Essent with a short position of NMI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essent and NMI Holdings.
Diversification Opportunities for Essent and NMI Holdings
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Essent and NMI is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Essent Group and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings and Essent 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 Essent Group 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 Essent i.e., Essent and NMI Holdings go up and down completely randomly.
Pair Corralation between Essent and NMI Holdings
Given the investment horizon of 90 days Essent is expected to generate 5.5 times less return on investment than NMI Holdings. In addition to that, Essent is 1.1 times more volatile than NMI Holdings. It trades about 0.02 of its total potential returns per unit of risk. NMI Holdings is currently generating about 0.1 per unit of volatility. If you would invest 3,243 in NMI Holdings on August 24, 2024 and sell it today you would earn a total of 584.00 from holding NMI Holdings or generate 18.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Essent Group vs. NMI Holdings
Performance |
| Timeline |
| Essent Group |
| NMI Holdings |
Essent and NMI Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Essent and NMI Holdings
The main advantage of trading using opposite Essent and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essent 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 Essent Group 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.| NMI Holdings vs. MGIC Investment Corp | NMI Holdings vs. Employers Holdings | NMI Holdings vs. James River Group | NMI Holdings vs. ICC 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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