Correlation Between Lument Finance and PennyMac Mortgage

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

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

Diversification Opportunities for Lument Finance and PennyMac Mortgage

0.91

Correlation Coefficient

Lument Finance  PennyMac Mortgage

Almost no diversification

The 3 months correlation between Lument and PennyMac is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Lument Finance Trust and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Lument Finance 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 Lument Finance Trust 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 Lument Finance i.e., Lument Finance and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Lument Finance and PennyMac Mortgage

Considering the 90-day investment horizon Lument Finance is expected to generate 1.23 times less return on investment than PennyMac Mortgage. In addition to that, Lument Finance is 2.17 times more volatile than PennyMac Mortgage Investment. It trades about 0.06 of its total potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.15 per unit of volatility. If you would invest  2,298  in PennyMac Mortgage Investment on December 29, 2024 and sell it today you would earn a total of  151.00  from holding PennyMac Mortgage Investment or generate 6.57% return on investment over 90 days.

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

Lument Finance Trust  vs.  PennyMac Mortgage Investment

Lument Finance Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Lument Finance is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PennyMac Mortgage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, PennyMac Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lument Finance and PennyMac Mortgage

The main advantage of trading using opposite Lument Finance and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lument Finance 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 Lument Finance Trust 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.