Correlation Between PennyMac Finl and NRx Pharmaceuticals

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

Diversification Opportunities for PennyMac Finl and NRx Pharmaceuticals

-0.27

Correlation Coefficient

PennyMac Finl  NRx Pharmaceuticals

Very good diversification

The 3 months correlation between PennyMac and NRx is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and NRx Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRx Pharmaceuticals 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 NRx Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRx Pharmaceuticals has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and NRx Pharmaceuticals go up and down completely randomly.

Pair Corralation between PennyMac Finl and NRx Pharmaceuticals

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to under-perform the NRx Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Finl Svcs is 16.96 times less risky than NRx Pharmaceuticals. The stock trades about -0.12 of its potential returns per unit of risk. The NRx Pharmaceuticals is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  5.60  in NRx Pharmaceuticals on October 5, 2024 and sell it today you would earn a total of  13.40  from holding NRx Pharmaceuticals or generate 239.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

PennyMac Finl Svcs  vs.  NRx Pharmaceuticals

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.

NRx Pharmaceuticals

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NRx Pharmaceuticals are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NRx Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Finl and NRx Pharmaceuticals

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

The idea behind PennyMac Finl Svcs and NRx Pharmaceuticals 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.