Correlation Between PennyMac Mortgage and Columbia Sportswear

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

Diversification Opportunities for PennyMac Mortgage and Columbia Sportswear

0.37

Correlation Coefficient

PennyMac Mortgage  Columbia Sportswear

Weak diversification

The 3 months correlation between PennyMac and Columbia is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear 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 Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Columbia Sportswear go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Columbia Sportswear

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 2.47 times less return on investment than Columbia Sportswear. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 2.05 times less risky than Columbia Sportswear. It trades about 0.1 of its potential returns per unit of risk. Columbia Sportswear is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,222  in Columbia Sportswear on September 4, 2024 and sell it today you would earn a total of  1,028  from holding Columbia Sportswear or generate 14.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

PennyMac Mortgage Investment  vs.  Columbia Sportswear

PennyMac Mortgage

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 8 (%) 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.

Columbia Sportswear

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Columbia Sportswear reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Columbia Sportswear

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

The idea behind PennyMac Mortgage Investment and Columbia Sportswear 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.