Correlation Between BOSTON BEER and PennyMac Financial

Can any of the company-specific risk be diversified away by investing in both BOSTON BEER and PennyMac Financial 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 BOSTON BEER and PennyMac Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BOSTON BEER A and PennyMac Financial Services, you can compare the effects of market volatilities on BOSTON BEER and PennyMac Financial 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 BOSTON BEER with a short position of PennyMac Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOSTON BEER and PennyMac Financial.

Diversification Opportunities for BOSTON BEER and PennyMac Financial

0.26

Correlation Coefficient

BOSTON BEER  PennyMac Financial

Modest diversification

The 3 months correlation between BOSTON and PennyMac is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON BEER A and PennyMac Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Financial and BOSTON BEER 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 BOSTON BEER A are associated (or correlated) with PennyMac Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Financial has no effect on the direction of BOSTON BEER i.e., BOSTON BEER and PennyMac Financial go up and down completely randomly.

Pair Corralation between BOSTON BEER and PennyMac Financial

Assuming the 90 days trading horizon BOSTON BEER A is expected to under-perform the PennyMac Financial. In addition to that, BOSTON BEER is 1.03 times more volatile than PennyMac Financial Services. It trades about -0.01 of its total potential returns per unit of risk. PennyMac Financial Services is currently generating about 0.06 per unit of volatility. If you would invest  5,682  in PennyMac Financial Services on October 11, 2024 and sell it today you would earn a total of  4,018  from holding PennyMac Financial Services or generate 70.71% return on investment over 90 days.

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

BOSTON BEER A   vs.  PennyMac Financial Services

BOSTON BEER A

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, BOSTON BEER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

PennyMac Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PennyMac Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BOSTON BEER and PennyMac Financial

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

The idea behind BOSTON BEER A and PennyMac Financial Services 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.