Correlation Between NMI Holdings and Essent

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

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

Diversification Opportunities for NMI Holdings and Essent

0.81

Correlation Coefficient

NMI Holdings  Essent

Very poor diversification

The 3 months correlation between NMI and Essent is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NMI Holdings and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent Group 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 Essent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essent Group has no effect on the direction of NMI Holdings i.e., NMI Holdings and Essent go up and down completely randomly.

Pair Corralation between NMI Holdings and Essent

Given the investment horizon of 90 days NMI Holdings is expected to generate 1.2 times more return on investment than Essent. However, NMI Holdings is 1.2 times more volatile than Essent Group. It trades about -0.02 of its potential returns per unit of risk. Essent Group is currently generating about -0.02 per unit of risk. If you would invest  3,797  in NMI Holdings on May 6, 2025 and sell it today you would lose (78.00) from holding NMI Holdings or give up 2.05% of portfolio value over 90 days.

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

NMI Holdings  vs.  Essent Group

NMI Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, NMI Holdings is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Essent Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essent Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essent is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NMI Holdings and Essent

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

The idea behind NMI Holdings and Essent Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .