Correlation Between PennyMac Mortgage and Entravision Communications

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

Diversification Opportunities for PennyMac Mortgage and Entravision Communications

-0.27

Correlation Coefficient

PennyMac Mortgage  Entravision Communications

Very good diversification

The 3 months correlation between PennyMac and Entravision is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Entravision Communications go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Entravision Communications

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.21 times more return on investment than Entravision Communications. However, PennyMac Mortgage Investment is 4.85 times less risky than Entravision Communications. It trades about 0.08 of its potential returns per unit of risk. Entravision Communications is currently generating about -0.04 per unit of risk. If you would invest  1,189  in PennyMac Mortgage Investment on October 22, 2024 and sell it today you would earn a total of  21.00  from holding PennyMac Mortgage Investment or generate 1.77% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Entravision Communications

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.

Entravision Communications

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Entravision Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Entravision Communications

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

The idea behind PennyMac Mortgage Investment and Entravision Communications 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.