Correlation Between VULCAN MATERIALS and PennyMac Mortgage

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

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

Diversification Opportunities for VULCAN MATERIALS and PennyMac Mortgage

0.34

Correlation Coefficient

VULCAN MATERIALS  PennyMac Mortgage

Weak diversification

The 3 months correlation between VULCAN and PennyMac is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding VULCAN MATERIALS and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and VULCAN MATERIALS 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 VULCAN MATERIALS 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 VULCAN MATERIALS i.e., VULCAN MATERIALS and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between VULCAN MATERIALS and PennyMac Mortgage

Assuming the 90 days trading horizon VULCAN MATERIALS is expected to under-perform the PennyMac Mortgage. In addition to that, VULCAN MATERIALS is 1.35 times more volatile than PennyMac Mortgage Investment. It trades about -0.28 of its total potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about -0.1 per unit of volatility. If you would invest  1,260  in PennyMac Mortgage Investment on September 23, 2024 and sell it today you would lose (30.00) from holding PennyMac Mortgage Investment or give up 2.38% of portfolio value over 90 days.

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

VULCAN MATERIALS  vs.  PennyMac Mortgage Investment

VULCAN MATERIALS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VULCAN MATERIALS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, VULCAN MATERIALS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 nearly stable basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VULCAN MATERIALS and PennyMac Mortgage

The main advantage of trading using opposite VULCAN MATERIALS and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VULCAN MATERIALS 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 VULCAN MATERIALS 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.