Correlation Between W P and PennyMac Mortgage

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

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

Diversification Opportunities for W P and PennyMac Mortgage

0.05

Correlation Coefficient

W P  PennyMac Mortgage

Significant diversification

The 3 months correlation between WPY and PennyMac is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding W P Carey and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and W P 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 W P Carey 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 W P i.e., W P and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between W P and PennyMac Mortgage

Assuming the 90 days horizon W P Carey is expected to under-perform the PennyMac Mortgage. But the stock apears to be less risky and, when comparing its historical volatility, W P Carey is 1.08 times less risky than PennyMac Mortgage. The stock trades about -0.21 of its potential returns per unit of risk. The PennyMac Mortgage Investment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,240  in PennyMac Mortgage Investment on September 22, 2024 and sell it today you would earn a total of  0.00  from holding PennyMac Mortgage Investment or generate 0.0% return on investment over 90 days.

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

W P Carey  vs.  PennyMac Mortgage Investment

W P Carey

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days W P Carey has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 W P and PennyMac Mortgage

The main advantage of trading using opposite W P and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if W P 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 W P Carey 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.