Correlation Between NMI Holdings and Union Pacific

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

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

Diversification Opportunities for NMI Holdings and Union Pacific

0.22

Correlation Coefficient

NMI Holdings  Union Pacific

Modest diversification

The 3 months correlation between NMI and Union is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of NMI Holdings i.e., NMI Holdings and Union Pacific go up and down completely randomly.

Pair Corralation between NMI Holdings and Union Pacific

Assuming the 90 days horizon NMI Holdings is expected to generate 1.1 times more return on investment than Union Pacific. However, NMI Holdings is 1.1 times more volatile than Union Pacific. It trades about 0.04 of its potential returns per unit of risk. Union Pacific is currently generating about 0.03 per unit of risk. If you would invest  3,680  in NMI Holdings on August 30, 2024 and sell it today you would earn a total of  120.00  from holding NMI Holdings or generate 3.26% 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.  Union Pacific

NMI Holdings

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMI Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Union Pacific

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NMI Holdings and Union Pacific

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

The idea behind NMI Holdings and Union Pacific 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.