Correlation Between PennyMac Mortgage and Japan Post

Can any of the company-specific risk be diversified away by investing in both PennyMac Mortgage and Japan Post 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 Japan Post 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 Japan Post Insurance, you can compare the effects of market volatilities on PennyMac Mortgage and Japan Post 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 Japan Post. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Mortgage and Japan Post.

Diversification Opportunities for PennyMac Mortgage and Japan Post

0.41

Correlation Coefficient

PennyMac Mortgage  Japan Post

Very weak diversification

The 3 months correlation between PennyMac and Japan is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Japan Post Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Post 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 Japan Post. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Post Insurance has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Japan Post go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Japan Post

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.84 times more return on investment than Japan Post. However, PennyMac Mortgage Investment is 1.19 times less risky than Japan Post. It trades about -0.1 of its potential returns per unit of risk. Japan Post Insurance is currently generating about -0.29 per unit of risk. 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	Weak
Accuracy	100.0%
Values	Daily Returns

PennyMac Mortgage Investment  vs.  Japan Post 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.

Japan Post Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Post Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Japan Post may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PennyMac Mortgage and Japan Post

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

The idea behind PennyMac Mortgage Investment and Japan Post 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.