Correlation Between PennyMac Mortgage and New Residential

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

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

Diversification Opportunities for PennyMac Mortgage and New Residential

-0.01

Correlation Coefficient

PennyMac Mortgage  New Residential

Good diversification

The 3 months correlation between PennyMac and New is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and PennyMac Mortgage 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 Mortgage Investment are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and New Residential go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and New Residential

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 11.24 times less return on investment than New Residential. In addition to that, PennyMac Mortgage is 1.01 times more volatile than New Residential Investment. It trades about 0.02 of its total potential returns per unit of risk. New Residential Investment is currently generating about 0.22 per unit of volatility. If you would invest  955.00  in New Residential Investment on October 23, 2024 and sell it today you would earn a total of  145.00  from holding New Residential Investment or generate 15.18% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  New Residential Investment

PennyMac Mortgage

Risk-Adjusted Performance

1 of 100

Weak

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

New Residential Inve

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, New Residential reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and New Residential

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

The idea behind PennyMac Mortgage Investment and New Residential 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 Commodity Directory module to find actively traded commodities issued by global exchanges.