Correlation Between PennyMac Financial and Scottish Mortgage

Can any of the company-specific risk be diversified away by investing in both PennyMac Financial and Scottish Mortgage 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 Scottish Mortgage 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 Scottish Mortgage Investment, you can compare the effects of market volatilities on PennyMac Financial and Scottish Mortgage 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 Scottish Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Financial and Scottish Mortgage.

Diversification Opportunities for PennyMac Financial and Scottish Mortgage

0.36

Correlation Coefficient

PennyMac Financial  Scottish Mortgage

Weak diversification

The 3 months correlation between PennyMac and Scottish is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Financial Services and Scottish Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scottish Mortgage 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 Scottish Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scottish Mortgage has no effect on the direction of PennyMac Financial i.e., PennyMac Financial and Scottish Mortgage go up and down completely randomly.

Pair Corralation between PennyMac Financial and Scottish Mortgage

Assuming the 90 days horizon PennyMac Financial Services is expected to under-perform the Scottish Mortgage. In addition to that, PennyMac Financial is 2.0 times more volatile than Scottish Mortgage Investment. It trades about -0.03 of its total potential returns per unit of risk. Scottish Mortgage Investment is currently generating about -0.06 per unit of volatility. If you would invest  1,178  in Scottish Mortgage Investment on October 9, 2024 and sell it today you would lose (10.00) from holding Scottish Mortgage Investment or give up 0.85% of portfolio value over 90 days.

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

PennyMac Financial Services  vs.  Scottish Mortgage 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.

Scottish Mortgage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Scottish Mortgage Investment are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Scottish Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Financial and Scottish Mortgage

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

The idea behind PennyMac Financial Services and Scottish Mortgage 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.