Correlation Between PennyMac Mortgage and ScanSource

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

Diversification Opportunities for PennyMac Mortgage and ScanSource

0.43

Correlation Coefficient

PennyMac Mortgage  ScanSource

Very weak diversification

The 3 months correlation between PennyMac and ScanSource is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource 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 ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and ScanSource go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and ScanSource

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.63 times more return on investment than ScanSource. However, PennyMac Mortgage Investment is 1.6 times less risky than ScanSource. It trades about -0.15 of its potential returns per unit of risk. ScanSource is currently generating about -0.2 per unit of risk. If you would invest  1,228  in PennyMac Mortgage Investment on October 11, 2024 and sell it today you would lose (38.00) from holding PennyMac Mortgage Investment or give up 3.09% of portfolio value over 90 days.

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

PennyMac Mortgage Investment  vs.  ScanSource

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.

ScanSource

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with PennyMac Mortgage and ScanSource

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

The idea behind PennyMac Mortgage Investment and ScanSource 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.