Correlation Between CAIRN HOMES and PennyMac Financial

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

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

Diversification Opportunities for CAIRN HOMES and PennyMac Financial

0.24

Correlation Coefficient

CAIRN HOMES  PennyMac Financial

Modest diversification

The 3 months correlation between CAIRN and PennyMac is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CAIRN HOMES EO and PennyMac Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Financial and CAIRN HOMES 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 CAIRN HOMES EO 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 CAIRN HOMES i.e., CAIRN HOMES and PennyMac Financial go up and down completely randomly.

Pair Corralation between CAIRN HOMES and PennyMac Financial

Assuming the 90 days horizon CAIRN HOMES EO is expected to under-perform the PennyMac Financial. But the stock apears to be less risky and, when comparing its historical volatility, CAIRN HOMES EO is 1.1 times less risky than PennyMac Financial. The stock trades about -0.1 of its potential returns per unit of risk. The PennyMac Financial Services is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,620  in PennyMac Financial Services on December 21, 2024 and sell it today you would lose (370.00) from holding PennyMac Financial Services or give up 3.85% of portfolio value over 90 days.

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

CAIRN HOMES EO  vs.  PennyMac Financial Services

CAIRN HOMES EO

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAIRN HOMES EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PennyMac Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days PennyMac Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. 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 CAIRN HOMES and PennyMac Financial

The main advantage of trading using opposite CAIRN HOMES and PennyMac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAIRN HOMES 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 CAIRN HOMES EO 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.