Correlation Between PennyMac Mortgage and Grand Canyon

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

Diversification Opportunities for PennyMac Mortgage and Grand Canyon

0.13

Correlation Coefficient

PennyMac Mortgage  Grand Canyon

Average diversification

The 3 months correlation between PennyMac and Grand is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Grand Canyon Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Canyon Education 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 Grand Canyon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Canyon Education has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Grand Canyon go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Grand Canyon

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 11.97 times less return on investment than Grand Canyon. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 2.85 times less risky than Grand Canyon. It trades about 0.05 of its potential returns per unit of risk. Grand Canyon Education is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  12,700  in Grand Canyon Education on October 6, 2024 and sell it today you would earn a total of  3,100  from holding Grand Canyon Education or generate 24.41% 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.  Grand Canyon Education

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Grand Canyon Education

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Canyon Education are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Grand Canyon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Grand Canyon

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

The idea behind PennyMac Mortgage Investment and Grand Canyon Education 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.