Correlation Between Alphabet and PennyMac Mortgage

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

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

Diversification Opportunities for Alphabet and PennyMac Mortgage

-0.38

Correlation Coefficient

Alphabet  PennyMac Mortgage

Very good diversification

The 3 months correlation between Alphabet and PennyMac is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Alphabet and PennyMac Mortgage

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.73 times more return on investment than PennyMac Mortgage. However, Alphabet is 1.73 times more volatile than PennyMac Mortgage Investment. It trades about 0.08 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.01 per unit of risk. If you would invest  15,840  in Alphabet Inc Class C on September 2, 2024 and sell it today you would earn a total of  1,209  from holding Alphabet Inc Class C or generate 7.63% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  PennyMac Mortgage Investment

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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. In spite of comparatively stable primary indicators, PennyMac Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alphabet and PennyMac Mortgage

The main advantage of trading using opposite Alphabet and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.