Correlation Between PennyMac Finl and Relay Therapeutics

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

Diversification Opportunities for PennyMac Finl and Relay Therapeutics

0.42

Correlation Coefficient

PennyMac Finl  Relay Therapeutics

Very weak diversification

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

Pair Corralation between PennyMac Finl and Relay Therapeutics

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to generate 0.39 times more return on investment than Relay Therapeutics. However, PennyMac Finl Svcs is 2.54 times less risky than Relay Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Relay Therapeutics is currently generating about -0.04 per unit of risk. If you would invest  6,277  in PennyMac Finl Svcs on October 5, 2024 and sell it today you would earn a total of  3,937  from holding PennyMac Finl Svcs or generate 62.72% 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.  Relay Therapeutics

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.

Relay Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Relay Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic 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 Relay Therapeutics

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

The idea behind PennyMac Finl Svcs and Relay Therapeutics 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .