Correlation Between PennyMac Finl and CNFinance Holdings

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

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

Diversification Opportunities for PennyMac Finl and CNFinance Holdings

0.18

Correlation Coefficient

PennyMac Finl  CNFinance Holdings

Average diversification

The 3 months correlation between PennyMac and CNFinance is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and CNFinance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNFinance Holdings and PennyMac Finl 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 PennyMac Finl Svcs are associated (or correlated) with CNFinance Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNFinance Holdings has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and CNFinance Holdings go up and down completely randomly.

Pair Corralation between PennyMac Finl and CNFinance Holdings

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to under-perform the CNFinance Holdings. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Finl Svcs is 2.1 times less risky than CNFinance Holdings. The stock trades about -0.13 of its potential returns per unit of risk. The CNFinance Holdings is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  119.00  in CNFinance Holdings on November 29, 2024 and sell it today you would lose (8.00) from holding CNFinance Holdings or give up 6.72% of portfolio value over 90 days.

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

PennyMac Finl Svcs  vs.  CNFinance Holdings

PennyMac Finl Svcs

Risk-Adjusted Performance

Very Weak

Over the last 90 days PennyMac Finl Svcs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, PennyMac Finl is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

CNFinance Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNFinance Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, CNFinance Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Finl and CNFinance Holdings

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

The idea behind PennyMac Finl Svcs and CNFinance Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.