Correlation Between PennyMac Mortgage and REVO INSURANCE

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

Diversification Opportunities for PennyMac Mortgage and REVO INSURANCE

0.27

Correlation Coefficient

PennyMac Mortgage  REVO INSURANCE

Modest diversification

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

Pair Corralation between PennyMac Mortgage and REVO INSURANCE

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 12.81 times less return on investment than REVO INSURANCE. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 1.3 times less risky than REVO INSURANCE. It trades about 0.03 of its potential returns per unit of risk. REVO INSURANCE SPA is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  910.00  in REVO INSURANCE SPA on October 1, 2024 and sell it today you would earn a total of  255.00  from holding REVO INSURANCE SPA or generate 28.02% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  REVO INSURANCE SPA

PennyMac Mortgage

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 2 (%) 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.

REVO INSURANCE SPA

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in REVO INSURANCE SPA are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, REVO INSURANCE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and REVO INSURANCE

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

The idea behind PennyMac Mortgage Investment and REVO INSURANCE SPA 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.