Correlation Between CHINA HUARONG and PennyMac Mortgage

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

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and PennyMac Mortgage Investment, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and PennyMac Mortgage.

Diversification Opportunities for CHINA HUARONG and PennyMac Mortgage

-0.66

Correlation Coefficient

CHINA HUARONG  PennyMac Mortgage

Excellent diversification

The 3 months correlation between CHINA and PennyMac is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between CHINA HUARONG and PennyMac Mortgage

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 15.99 times more return on investment than PennyMac Mortgage. However, CHINA HUARONG is 15.99 times more volatile than PennyMac Mortgage Investment. It trades about 0.02 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.16 per unit of risk. If you would invest  0.15  in CHINA HUARONG ENERHD 50 on December 29, 2024 and sell it today you would lose (0.10) from holding CHINA HUARONG ENERHD 50 or give up 66.67% of portfolio value over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  PennyMac Mortgage Investment

CHINA HUARONG ENERHD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, PennyMac Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHINA HUARONG and PennyMac Mortgage

The main advantage of trading using opposite CHINA HUARONG and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.