Correlation Between FIRST NATIONAL and PennyMac Financial

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

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

Diversification Opportunities for FIRST NATIONAL and PennyMac Financial

0.1

Correlation Coefficient

FIRST NATIONAL  PennyMac Financial

Average diversification

The 3 months correlation between FIRST and PennyMac is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding FIRST NATIONAL FIN and PennyMac Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Financial and FIRST NATIONAL 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 FIRST NATIONAL FIN 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 FIRST NATIONAL i.e., FIRST NATIONAL and PennyMac Financial go up and down completely randomly.

Pair Corralation between FIRST NATIONAL and PennyMac Financial

Assuming the 90 days horizon FIRST NATIONAL is expected to generate 1.42 times less return on investment than PennyMac Financial. In addition to that, FIRST NATIONAL is 1.27 times more volatile than PennyMac Financial Services. It trades about 0.03 of its total potential returns per unit of risk. PennyMac Financial Services is currently generating about 0.06 per unit of volatility. If you would invest  7,811  in PennyMac Financial Services on September 25, 2024 and sell it today you would earn a total of  1,839  from holding PennyMac Financial Services or generate 23.54% return on investment over 90 days.

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

FIRST NATIONAL FIN  vs.  PennyMac Financial Services

FIRST NATIONAL FIN

Risk-Adjusted Performance

4 of 100

Insignificant

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

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 FIRST NATIONAL and PennyMac Financial

The main advantage of trading using opposite FIRST NATIONAL and PennyMac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FIRST NATIONAL 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 FIRST NATIONAL FIN 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.