Correlation Between Citigroup and PennyMac Mortgage

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

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

Diversification Opportunities for Citigroup and PennyMac Mortgage

0.15

Correlation Coefficient

Citigroup  PennyMac Mortgage

Average diversification

The 3 months correlation between Citigroup and PennyMac is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Citigroup 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 Citigroup are associated (or correlated) with PennyMac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Mortgage has no effect on the direction of Citigroup i.e., Citigroup and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Citigroup and PennyMac Mortgage

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.4 times more return on investment than PennyMac Mortgage. However, Citigroup is 1.4 times more volatile than PennyMac Mortgage Investment. It trades about 0.07 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.06 per unit of risk. If you would invest  4,293  in Citigroup on September 3, 2024 and sell it today you would earn a total of  2,794  from holding Citigroup or generate 65.08% return on investment over 90 days.

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

Citigroup  vs.  PennyMac Mortgage Investment

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

PennyMac Mortgage

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citigroup and PennyMac Mortgage

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

The idea behind Citigroup and PennyMac Mortgage Investment 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.