Correlation Between PennyMac Mortgage and Costco Wholesale

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

Diversification Opportunities for PennyMac Mortgage and Costco Wholesale

0.15

Correlation Coefficient

PennyMac Mortgage  Costco Wholesale

Average diversification

The 3 months correlation between PennyMac and Costco is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Costco Wholesale go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Costco Wholesale

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.8 times more return on investment than Costco Wholesale. However, PennyMac Mortgage Investment is 1.25 times less risky than Costco Wholesale. It trades about 0.16 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.03 per unit of risk. If you would invest  1,190  in PennyMac Mortgage Investment on December 30, 2024 and sell it today you would earn a total of  170.00  from holding PennyMac Mortgage Investment or generate 14.29% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Costco Wholesale Corp

PennyMac Mortgage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, PennyMac Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Costco Wholesale is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PennyMac Mortgage and Costco Wholesale

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

The idea behind PennyMac Mortgage Investment and Costco Wholesale Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.