Correlation Between PennyMac Financial and Iridium Communications

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

Diversification Opportunities for PennyMac Financial and Iridium Communications

0.38

Correlation Coefficient

PennyMac Financial  Iridium Communications

Weak diversification

The 3 months correlation between PennyMac and Iridium is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Financial Services and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications 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 Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of PennyMac Financial i.e., PennyMac Financial and Iridium Communications go up and down completely randomly.

Pair Corralation between PennyMac Financial and Iridium Communications

Assuming the 90 days horizon PennyMac Financial Services is expected to generate 1.05 times more return on investment than Iridium Communications. However, PennyMac Financial is 1.05 times more volatile than Iridium Communications. It trades about -0.08 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.11 per unit of risk. If you would invest  9,700  in PennyMac Financial Services on October 6, 2024 and sell it today you would lose (250.00) from holding PennyMac Financial Services or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

PennyMac Financial Services  vs.  Iridium Communications

PennyMac Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PennyMac Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Iridium Communications

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iridium Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Iridium Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with PennyMac Financial and Iridium Communications

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

The idea behind PennyMac Financial Services and Iridium Communications 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.