Correlation Between PennyMac Mortgage and INSURANCE AUST

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

Diversification Opportunities for PennyMac Mortgage and INSURANCE AUST

-0.39

Correlation Coefficient

PennyMac Mortgage  INSURANCE AUST

Very good diversification

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

Pair Corralation between PennyMac Mortgage and INSURANCE AUST

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.57 times more return on investment than INSURANCE AUST. However, PennyMac Mortgage Investment is 1.75 times less risky than INSURANCE AUST. It trades about 0.11 of its potential returns per unit of risk. INSURANCE AUST GRP is currently generating about -0.05 per unit of risk. If you would invest  1,257  in PennyMac Mortgage Investment on December 1, 2024 and sell it today you would earn a total of  103.00  from holding PennyMac Mortgage Investment or generate 8.19% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  INSURANCE AUST GRP

PennyMac Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennyMac Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

INSURANCE AUST GRP

Risk-Adjusted Performance

Very Weak

Over the last 90 days INSURANCE AUST GRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with PennyMac Mortgage and INSURANCE AUST

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

The idea behind PennyMac Mortgage Investment and INSURANCE AUST GRP 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.