Correlation Between PennyMac Finl and ESSA Pharma

Can any of the company-specific risk be diversified away by investing in both PennyMac Finl and ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma, you can compare the effects of market volatilities on PennyMac Finl and ESSA Pharma 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 ESSA Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Finl and ESSA Pharma.

Diversification Opportunities for PennyMac Finl and ESSA Pharma

0.42

Correlation Coefficient

PennyMac Finl  ESSA Pharma

Very weak diversification

The 3 months correlation between PennyMac and ESSA is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and ESSA Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Pharma 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 ESSA Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Pharma has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and ESSA Pharma go up and down completely randomly.

Pair Corralation between PennyMac Finl and ESSA Pharma

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to under-perform the ESSA Pharma. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Finl Svcs is 1.74 times less risky than ESSA Pharma. The stock trades about -0.12 of its potential returns per unit of risk. The ESSA Pharma is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  169.00  in ESSA Pharma on October 5, 2024 and sell it today you would earn a total of  10.00  from holding ESSA Pharma or generate 5.92% return on investment over 90 days.

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

PennyMac Finl Svcs  vs.  ESSA Pharma

PennyMac Finl Svcs

Risk-Adjusted Performance

0 of 100

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.

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with PennyMac Finl and ESSA Pharma

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

The idea behind PennyMac Finl Svcs and ESSA Pharma 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.