Correlation Between PennyMac Financial and AGNC INVESTMENT

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

Diversification Opportunities for PennyMac Financial and AGNC INVESTMENT

0.68

Correlation Coefficient

PennyMac Financial  AGNC INVESTMENT

Poor diversification

The 3 months correlation between PennyMac and AGNC is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Financial Services and AGNC INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGNC 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 AGNC INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGNC INVESTMENT has no effect on the direction of PennyMac Financial i.e., PennyMac Financial and AGNC INVESTMENT go up and down completely randomly.

Pair Corralation between PennyMac Financial and AGNC INVESTMENT

Assuming the 90 days horizon PennyMac Financial Services is expected to under-perform the AGNC INVESTMENT. In addition to that, PennyMac Financial is 1.55 times more volatile than AGNC INVESTMENT. It trades about -0.03 of its total potential returns per unit of risk. AGNC INVESTMENT is currently generating about 0.12 per unit of volatility. If you would invest  900.00  in AGNC INVESTMENT on October 9, 2024 and sell it today you would earn a total of  18.00  from holding AGNC INVESTMENT or generate 2.0% return on investment over 90 days.

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

PennyMac Financial Services  vs.  AGNC 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.

AGNC INVESTMENT

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AGNC INVESTMENT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, AGNC INVESTMENT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PennyMac Financial and AGNC INVESTMENT

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

The idea behind PennyMac Financial Services and AGNC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.