Correlation Between Treasury Wine and PennyMac Mortgage

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

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

Diversification Opportunities for Treasury Wine and PennyMac Mortgage

-0.45

Correlation Coefficient

Treasury Wine  PennyMac Mortgage

Very good diversification

The 3 months correlation between Treasury and PennyMac is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Treasury Wine 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 Treasury Wine Estates are associated (or correlated) with PennyMac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Mortgage has no effect on the direction of Treasury Wine i.e., Treasury Wine and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Treasury Wine and PennyMac Mortgage

Assuming the 90 days horizon Treasury Wine Estates is expected to under-perform the PennyMac Mortgage. In addition to that, Treasury Wine is 1.33 times more volatile than PennyMac Mortgage Investment. It trades about -0.1 of its total potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.16 per unit of volatility. If you would invest  1,190  in PennyMac Mortgage Investment on December 30, 2024 and sell it today you would earn a total of  170.00  from holding PennyMac Mortgage Investment or generate 14.29% return on investment over 90 days.

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

Treasury Wine Estates  vs.  PennyMac Mortgage Investment

Treasury Wine Estates

Risk-Adjusted Performance

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, PennyMac Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Treasury Wine and PennyMac Mortgage

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

The idea behind Treasury Wine Estates and PennyMac Mortgage Investment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.