Correlation Between PennyMac Mortgage and Annaly Capital

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

Diversification Opportunities for PennyMac Mortgage and Annaly Capital

-0.65

Correlation Coefficient

PennyMac Mortgage  Annaly Capital

Excellent diversification

The 3 months correlation between PennyMac and Annaly is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Annaly Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Management 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 Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Management has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Annaly Capital go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Annaly Capital

Assuming the 90 days trading horizon PennyMac Mortgage is expected to generate 1.23 times less return on investment than Annaly Capital. In addition to that, PennyMac Mortgage is 1.49 times more volatile than Annaly Capital Management. It trades about 0.04 of its total potential returns per unit of risk. Annaly Capital Management is currently generating about 0.08 per unit of volatility. If you would invest  1,973  in Annaly Capital Management on October 5, 2024 and sell it today you would earn a total of  575.00  from holding Annaly Capital Management or generate 29.14% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Annaly Capital Management

PennyMac Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennyMac Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Annaly Capital Management

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Annaly Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PennyMac Mortgage and Annaly Capital

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

The idea behind PennyMac Mortgage Investment and Annaly Capital Management 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.