Correlation Between PennyMac Mortgage and Qantas Airways

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

Diversification Opportunities for PennyMac Mortgage and Qantas Airways

0.11

Correlation Coefficient

PennyMac Mortgage  Qantas Airways

Average diversification

The 3 months correlation between PennyMac and Qantas is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Qantas Airways Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qantas Airways 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 Qantas Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qantas Airways has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Qantas Airways go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Qantas Airways

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 9.41 times less return on investment than Qantas Airways. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 1.47 times less risky than Qantas Airways. It trades about 0.02 of its potential returns per unit of risk. Qantas Airways Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  329.00  in Qantas Airways Limited on October 9, 2024 and sell it today you would earn a total of  221.00  from holding Qantas Airways Limited or generate 67.17% 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.  Qantas Airways Limited

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.

Qantas Airways

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Qantas Airways Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Qantas Airways reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Qantas Airways

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

The idea behind PennyMac Mortgage Investment and Qantas Airways Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.