Correlation Between PennyMac Mortgage and ARROW ELECTRONICS

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

Diversification Opportunities for PennyMac Mortgage and ARROW ELECTRONICS

0.2

Correlation Coefficient

PennyMac Mortgage  ARROW ELECTRONICS

Modest diversification

The 3 months correlation between PennyMac and ARROW is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and ARROW ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARROW ELECTRONICS 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 ARROW ELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARROW ELECTRONICS has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and ARROW ELECTRONICS go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and ARROW ELECTRONICS

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.49 times more return on investment than ARROW ELECTRONICS. However, PennyMac Mortgage Investment is 2.02 times less risky than ARROW ELECTRONICS. It trades about 0.2 of its potential returns per unit of risk. ARROW ELECTRONICS is currently generating about 0.1 per unit of risk. If you would invest  1,230  in PennyMac Mortgage Investment on September 20, 2024 and sell it today you would earn a total of  50.00  from holding PennyMac Mortgage Investment or generate 4.07% 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.  ARROW ELECTRONICS

PennyMac Mortgage

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 4 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

ARROW ELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARROW ELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ARROW ELECTRONICS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PennyMac Mortgage and ARROW ELECTRONICS

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

The idea behind PennyMac Mortgage Investment and ARROW ELECTRONICS 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.