Correlation Between Check Point and PennyMac Mortgage

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

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

Diversification Opportunities for Check Point and PennyMac Mortgage

0.44

Correlation Coefficient

Check Point  PennyMac Mortgage

Very weak diversification

The 3 months correlation between Check and PennyMac is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Check Point 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 Check Point Software 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 Check Point i.e., Check Point and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Check Point and PennyMac Mortgage

Assuming the 90 days trading horizon Check Point Software is expected to generate 1.58 times more return on investment than PennyMac Mortgage. However, Check Point is 1.58 times more volatile than PennyMac Mortgage Investment. It trades about 0.21 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.12 per unit of risk. If you would invest  16,575  in Check Point Software on September 21, 2024 and sell it today you would earn a total of  1,085  from holding Check Point Software or generate 6.55% return on investment over 90 days.

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

Check Point Software  vs.  PennyMac Mortgage Investment

Check Point Software

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Check Point is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

PennyMac Mortgage

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Check Point and PennyMac Mortgage

The main advantage of trading using opposite Check Point and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Check Point 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 Check Point Software 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.