Correlation Between PennyMac Mortgage and ALIOR BANK

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

Diversification Opportunities for PennyMac Mortgage and ALIOR BANK

0.46

Correlation Coefficient

PennyMac Mortgage  ALIOR BANK

Very weak diversification

The 3 months correlation between PennyMac and ALIOR is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and ALIOR BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALIOR BANK 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 ALIOR BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALIOR BANK has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and ALIOR BANK go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and ALIOR BANK

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.8 times more return on investment than ALIOR BANK. However, PennyMac Mortgage Investment is 1.25 times less risky than ALIOR BANK. It trades about 0.01 of its potential returns per unit of risk. ALIOR BANK is currently generating about -0.03 per unit of risk. If you would invest  1,199  in PennyMac Mortgage Investment on October 20, 2024 and sell it today you would earn a total of  1.00  from holding PennyMac Mortgage Investment or generate 0.08% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  ALIOR BANK

PennyMac Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennyMac Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ALIOR BANK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALIOR BANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ALIOR BANK is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PennyMac Mortgage and ALIOR BANK

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

The idea behind PennyMac Mortgage Investment and ALIOR BANK 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.