Correlation Between PennyMac Mortgage and KeyCorp

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

Diversification Opportunities for PennyMac Mortgage and KeyCorp

0.39

Correlation Coefficient

PennyMac Mortgage  KeyCorp

Weak diversification

The 3 months correlation between PennyMac and KeyCorp is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and KeyCorp go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and KeyCorp

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.78 times more return on investment than KeyCorp. However, PennyMac Mortgage Investment is 1.29 times less risky than KeyCorp. It trades about -0.29 of its potential returns per unit of risk. KeyCorp is currently generating about -0.44 per unit of risk. If you would invest  1,257  in PennyMac Mortgage Investment on October 3, 2024 and sell it today you would lose (67.00) from holding PennyMac Mortgage Investment or give up 5.33% of portfolio value over 90 days.

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

PennyMac Mortgage Investment  vs.  KeyCorp

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

KeyCorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KeyCorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, KeyCorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and KeyCorp

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

The idea behind PennyMac Mortgage Investment and KeyCorp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.