Correlation Between PennyMac Mortgage and ARISTOCRAT LEISURE

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

Diversification Opportunities for PennyMac Mortgage and ARISTOCRAT LEISURE

0.22

Correlation Coefficient

PennyMac Mortgage  ARISTOCRAT LEISURE

Modest diversification

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

Pair Corralation between PennyMac Mortgage and ARISTOCRAT LEISURE

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 8.0 times less return on investment than ARISTOCRAT LEISURE. In addition to that, PennyMac Mortgage is 1.02 times more volatile than ARISTOCRAT LEISURE. It trades about 0.02 of its total potential returns per unit of risk. ARISTOCRAT LEISURE is currently generating about 0.17 per unit of volatility. If you would invest  2,365  in ARISTOCRAT LEISURE on October 5, 2024 and sell it today you would earn a total of  1,755  from holding ARISTOCRAT LEISURE or generate 74.21% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  ARISTOCRAT LEISURE

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

ARISTOCRAT LEISURE

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ARISTOCRAT LEISURE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, ARISTOCRAT LEISURE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and ARISTOCRAT LEISURE

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

The idea behind PennyMac Mortgage Investment and ARISTOCRAT LEISURE 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.