Correlation Between PennyMac Mortgage and KOMATSU

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

Diversification Opportunities for PennyMac Mortgage and KOMATSU

0.66

Correlation Coefficient

PennyMac Mortgage  KOMATSU

Poor diversification

The 3 months correlation between PennyMac and KOMATSU is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and KOMATSU LTD SPONS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOMATSU LTD SPONS 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 KOMATSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOMATSU LTD SPONS has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and KOMATSU go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and KOMATSU

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 1.04 times more return on investment than KOMATSU. However, PennyMac Mortgage is 1.04 times more volatile than KOMATSU LTD SPONS. It trades about 0.16 of its potential returns per unit of risk. KOMATSU LTD SPONS is currently generating about 0.12 per unit of risk. If you would invest  1,189  in PennyMac Mortgage Investment on December 23, 2024 and sell it today you would earn a total of  171.00  from holding PennyMac Mortgage Investment or generate 14.38% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  KOMATSU LTD SPONS

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

KOMATSU LTD SPONS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KOMATSU LTD SPONS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, KOMATSU may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PennyMac Mortgage and KOMATSU

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

The idea behind PennyMac Mortgage Investment and KOMATSU LTD SPONS 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.