Correlation Between Montauk Renewables and PennantPark Investment

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

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

Diversification Opportunities for Montauk Renewables and PennantPark Investment

0.07

Correlation Coefficient

Montauk Renewables  PennantPark Investment

Significant diversification

The 3 months correlation between Montauk and PennantPark is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Montauk Renewables and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and Montauk Renewables 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 Montauk Renewables are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Montauk Renewables i.e., Montauk Renewables and PennantPark Investment go up and down completely randomly.

Pair Corralation between Montauk Renewables and PennantPark Investment

Given the investment horizon of 90 days Montauk Renewables is expected to under-perform the PennantPark Investment. In addition to that, Montauk Renewables is 7.28 times more volatile than PennantPark Investment. It trades about -0.17 of its total potential returns per unit of risk. PennantPark Investment is currently generating about 0.07 per unit of volatility. If you would invest  705.00  in PennantPark Investment on December 5, 2024 and sell it today you would earn a total of  7.00  from holding PennantPark Investment or generate 0.99% return on investment over 90 days.

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

Montauk Renewables  vs.  PennantPark Investment

Montauk Renewables

Risk-Adjusted Performance

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

PennantPark Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Montauk Renewables and PennantPark Investment

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

The idea behind Montauk Renewables and PennantPark 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.