Correlation Between PennyMac Mortgage and Dynex Capital

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

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

Diversification Opportunities for PennyMac Mortgage and Dynex Capital

0.33

Correlation Coefficient

PennyMac Mortgage  Dynex Capital

Weak diversification

The 3 months correlation between PennyMac and Dynex is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Dynex Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynex Capital and PennyMac Mortgage 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 Mortgage Investment are associated (or correlated) with Dynex Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynex Capital has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Dynex Capital go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Dynex Capital

Assuming the 90 days trading horizon PennyMac Mortgage Investment is expected to generate 1.84 times more return on investment than Dynex Capital. However, PennyMac Mortgage is 1.84 times more volatile than Dynex Capital. It trades about 0.19 of its potential returns per unit of risk. Dynex Capital is currently generating about 0.06 per unit of risk. If you would invest  2,253  in PennyMac Mortgage Investment on December 29, 2024 and sell it today you would earn a total of  222.00  from holding PennyMac Mortgage Investment or generate 9.85% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Dynex Capital

PennyMac Mortgage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, PennyMac Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Dynex Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Dynex Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PennyMac Mortgage and Dynex Capital

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

The idea behind PennyMac Mortgage Investment and Dynex Capital 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..