Correlation Between Gladstone Investment and PennyMac Financial

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

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

Diversification Opportunities for Gladstone Investment and PennyMac Financial

-0.39

Correlation Coefficient

Gladstone Investment  PennyMac Financial

Very good diversification

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

Pair Corralation between Gladstone Investment and PennyMac Financial

Assuming the 90 days horizon Gladstone Investment is expected to generate 1.56 times less return on investment than PennyMac Financial. But when comparing it to its historical volatility, Gladstone Investment is 1.14 times less risky than PennyMac Financial. It trades about 0.04 of its potential returns per unit of risk. PennyMac Financial Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,860  in PennyMac Financial Services on September 19, 2024 and sell it today you would earn a total of  1,940  from holding PennyMac Financial Services or generate 24.68% return on investment over 90 days.

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

Gladstone Investment  vs.  PennyMac Financial Services

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.

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.

Pair Trading with Gladstone Investment and PennyMac Financial

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

The idea behind Gladstone Investment and PennyMac Financial Services 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.