Correlation Between PennyMac Mortgage and Veolia Environnement

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

Diversification Opportunities for PennyMac Mortgage and Veolia Environnement

-0.05

Correlation Coefficient

PennyMac Mortgage  Veolia Environnement

Good diversification

The 3 months correlation between PennyMac and Veolia is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement 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 Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Veolia Environnement go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Veolia Environnement

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 1.11 times more return on investment than Veolia Environnement. However, PennyMac Mortgage is 1.11 times more volatile than Veolia Environnement SA. It trades about 0.03 of its potential returns per unit of risk. Veolia Environnement SA is currently generating about 0.02 per unit of risk. If you would invest  1,017  in PennyMac Mortgage Investment on October 7, 2024 and sell it today you would earn a total of  193.00  from holding PennyMac Mortgage Investment or generate 18.98% 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.  Veolia Environnement SA

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.

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with PennyMac Mortgage and Veolia Environnement

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

The idea behind PennyMac Mortgage Investment and Veolia Environnement SA 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.