Correlation Between PennyMac Mortgage and Shenzhen Investment

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

Diversification Opportunities for PennyMac Mortgage and Shenzhen Investment

-0.29

Correlation Coefficient

PennyMac Mortgage  Shenzhen Investment

Very good diversification

The 3 months correlation between PennyMac and Shenzhen is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Shenzhen Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Investment 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 Shenzhen Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Investment has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Shenzhen Investment go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Shenzhen Investment

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 10.85 times less return on investment than Shenzhen Investment. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 5.28 times less risky than Shenzhen Investment. It trades about 0.02 of its potential returns per unit of risk. Shenzhen Investment Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Shenzhen Investment Limited on October 12, 2024 and sell it today you would earn a total of  1.00  from holding Shenzhen Investment Limited or generate 10.0% 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.  Shenzhen Investment 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.

Shenzhen Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Shenzhen Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Shenzhen Investment

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

The idea behind PennyMac Mortgage Investment and Shenzhen Investment 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.

Check out your portfolio center.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.