Correlation Between PennyMac Mortgage and Covivio SA

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

Diversification Opportunities for PennyMac Mortgage and Covivio SA

0.81

Correlation Coefficient

PennyMac Mortgage  Covivio SA

Very poor diversification

The 3 months correlation between PennyMac and Covivio is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Covivio SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covivio SA 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 Covivio SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covivio SA has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Covivio SA go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Covivio SA

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.86 times more return on investment than Covivio SA. However, PennyMac Mortgage Investment is 1.16 times less risky than Covivio SA. It trades about 0.15 of its potential returns per unit of risk. Covivio SA is currently generating about 0.06 per unit of risk. If you would invest  1,189  in PennyMac Mortgage Investment on December 22, 2024 and sell it today you would earn a total of  151.00  from holding PennyMac Mortgage Investment or generate 12.7% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Covivio SA

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 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennyMac Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Covivio SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Covivio SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Covivio SA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PennyMac Mortgage and Covivio SA

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

The idea behind PennyMac Mortgage Investment and Covivio SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.