Correlation Between PennyMac Mortgage and Granite Point

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

Diversification Opportunities for PennyMac Mortgage and Granite Point

0.42

Correlation Coefficient

PennyMac Mortgage  Granite Point

Very weak diversification

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

Pair Corralation between PennyMac Mortgage and Granite Point

Assuming the 90 days trading horizon PennyMac Mortgage is expected to generate 4.85 times less return on investment than Granite Point. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 1.48 times less risky than Granite Point. It trades about 0.07 of its potential returns per unit of risk. Granite Point Mortgage is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,531  in Granite Point Mortgage on September 3, 2024 and sell it today you would earn a total of  285.00  from holding Granite Point Mortgage or generate 18.62% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Granite Point Mortgage

PennyMac Mortgage

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Granite Point Mortgage

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Point Mortgage are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Granite Point sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Granite Point

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

The idea behind PennyMac Mortgage Investment and Granite Point 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..