Correlation Between PennyMac Financial and Gladstone Investment

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

By analyzing existing cross correlation between PennyMac Financial Services and Gladstone Investment, you can compare the effects of market volatilities on PennyMac Financial and Gladstone Investment 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 PennyMac Financial with a short position of Gladstone Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Financial and Gladstone Investment.

Diversification Opportunities for PennyMac Financial and Gladstone Investment

-0.39

Correlation Coefficient

PennyMac Financial  Gladstone Investment

Very good diversification

The 3 months correlation between PennyMac and Gladstone is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Financial Services and Gladstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gladstone Investment and PennyMac Financial 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 PennyMac Financial Services are associated (or correlated) with Gladstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gladstone Investment has no effect on the direction of PennyMac Financial i.e., PennyMac Financial and Gladstone Investment go up and down completely randomly.

Pair Corralation between PennyMac Financial and Gladstone Investment

Assuming the 90 days horizon PennyMac Financial Services is expected to under-perform the Gladstone Investment. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Financial Services is 1.03 times less risky than Gladstone Investment. The stock trades about -0.03 of its potential returns per unit of risk. The Gladstone Investment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,153  in Gladstone Investment on September 19, 2024 and sell it today you would earn a total of  144.00  from holding Gladstone Investment or generate 12.49% return on investment over 90 days.

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

PennyMac Financial Services  vs.  Gladstone Investment

PennyMac Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennyMac Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PennyMac Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gladstone Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gladstone Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Financial and Gladstone Investment

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

The idea behind PennyMac Financial Services and Gladstone Investment 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.