Correlation Between PennyMac Finl and Federal National

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

Diversification Opportunities for PennyMac Finl and Federal National

0.43

Correlation Coefficient

PennyMac Finl  Federal National

Very weak diversification

The 3 months correlation between PennyMac and Federal is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage 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 Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and Federal National go up and down completely randomly.

Pair Corralation between PennyMac Finl and Federal National

Given the investment horizon of 90 days PennyMac Finl is expected to generate 1.55 times less return on investment than Federal National. But when comparing it to its historical volatility, PennyMac Finl Svcs is 1.25 times less risky than Federal National. It trades about 0.01 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,750  in Federal National Mortgage on December 22, 2024 and sell it today you would earn a total of  9.00  from holding Federal National Mortgage or generate 0.51% 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.  Federal National Mortgage

PennyMac Finl Svcs

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Finl Svcs are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Federal National Mortgage

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Federal National is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with PennyMac Finl and Federal National

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

The idea behind PennyMac Finl Svcs and Federal National Mortgage 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.