Correlation Between PennyMac Financial and Stag Industrial

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

Diversification Opportunities for PennyMac Financial and Stag Industrial

0.22

Correlation Coefficient

PennyMac Financial  Stag Industrial

Modest diversification

The 3 months correlation between PennyMac and Stag is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Financial Services and Stag Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stag Industrial 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 Stag Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stag Industrial has no effect on the direction of PennyMac Financial i.e., PennyMac Financial and Stag Industrial go up and down completely randomly.

Pair Corralation between PennyMac Financial and Stag Industrial

Assuming the 90 days horizon PennyMac Financial Services is expected to generate 1.17 times more return on investment than Stag Industrial. However, PennyMac Financial is 1.17 times more volatile than Stag Industrial. It trades about -0.05 of its potential returns per unit of risk. Stag Industrial is currently generating about -0.16 per unit of risk. If you would invest  9,600  in PennyMac Financial Services on October 8, 2024 and sell it today you would lose (150.00) from holding PennyMac Financial Services or give up 1.56% 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.  Stag Industrial

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.

Stag Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stag Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Stag Industrial 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 Stag Industrial

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

The idea behind PennyMac Financial Services and Stag Industrial 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.