Correlation Between ITALIAN WINE and PennyMac Financial

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

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

Diversification Opportunities for ITALIAN WINE and PennyMac Financial

-0.07

Correlation Coefficient

ITALIAN WINE  PennyMac Financial

Good diversification

The 3 months correlation between ITALIAN and PennyMac is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding ITALIAN WINE BRANDS and PennyMac Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Financial and ITALIAN WINE 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 ITALIAN WINE BRANDS 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 ITALIAN WINE i.e., ITALIAN WINE and PennyMac Financial go up and down completely randomly.

Pair Corralation between ITALIAN WINE and PennyMac Financial

Assuming the 90 days horizon ITALIAN WINE is expected to generate 3.72 times less return on investment than PennyMac Financial. In addition to that, ITALIAN WINE is 1.0 times more volatile than PennyMac Financial Services. It trades about 0.03 of its total potential returns per unit of risk. PennyMac Financial Services is currently generating about 0.09 per unit of volatility. If you would invest  9,170  in PennyMac Financial Services on October 26, 2024 and sell it today you would earn a total of  1,030  from holding PennyMac Financial Services or generate 11.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

ITALIAN WINE BRANDS  vs.  PennyMac Financial Services

ITALIAN WINE BRANDS

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ITALIAN WINE BRANDS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ITALIAN WINE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PennyMac Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Financial Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PennyMac Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ITALIAN WINE and PennyMac Financial

The main advantage of trading using opposite ITALIAN WINE and PennyMac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITALIAN WINE 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 ITALIAN WINE BRANDS 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.