Correlation Between PennyMac Mortgage and Goosehead Insurance

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

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

Diversification Opportunities for PennyMac Mortgage and Goosehead Insurance

0.4

Correlation Coefficient

PennyMac Mortgage  Goosehead Insurance

Very weak diversification

The 3 months correlation between PennyMac and Goosehead is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and PennyMac Mortgage 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 PennyMac Mortgage Investment are associated (or correlated) with Goosehead Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goosehead Insurance has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Goosehead Insurance go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Goosehead Insurance

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 138.53 times less return on investment than Goosehead Insurance. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 2.71 times less risky than Goosehead Insurance. It trades about 0.0 of its potential returns per unit of risk. Goosehead Insurance is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,932  in Goosehead Insurance on September 23, 2024 and sell it today you would earn a total of  2,428  from holding Goosehead Insurance or generate 30.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

PennyMac Mortgage Investment  vs.  Goosehead Insurance

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.

Goosehead Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Goosehead Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Goosehead Insurance

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

The idea behind PennyMac Mortgage Investment and Goosehead Insurance 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.