Correlation Between ON SEMICONDUCTOR and PennyMac Mortgage

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

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

Diversification Opportunities for ON SEMICONDUCTOR and PennyMac Mortgage

0.41

Correlation Coefficient

ON SEMICONDUCTOR  PennyMac Mortgage

Very weak diversification

The 3 months correlation between XS4 and PennyMac is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ON SEMICONDUCTOR and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and ON SEMICONDUCTOR 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 ON SEMICONDUCTOR 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 ON SEMICONDUCTOR i.e., ON SEMICONDUCTOR and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between ON SEMICONDUCTOR and PennyMac Mortgage

Assuming the 90 days trading horizon ON SEMICONDUCTOR is expected to generate 2.26 times less return on investment than PennyMac Mortgage. In addition to that, ON SEMICONDUCTOR is 2.63 times more volatile than PennyMac Mortgage Investment. It trades about 0.01 of its total potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.08 per unit of volatility. If you would invest  1,212  in PennyMac Mortgage Investment on September 12, 2024 and sell it today you would earn a total of  58.00  from holding PennyMac Mortgage Investment or generate 4.79% return on investment over 90 days.

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

ON SEMICONDUCTOR  vs.  PennyMac Mortgage Investment

ON SEMICONDUCTOR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON SEMICONDUCTOR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ON SEMICONDUCTOR is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

PennyMac Mortgage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 6 (%) 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 ON SEMICONDUCTOR and PennyMac Mortgage

The main advantage of trading using opposite ON SEMICONDUCTOR and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ON SEMICONDUCTOR 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 ON SEMICONDUCTOR 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.