Correlation Between PennyMac Mortgage and Air Products

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

Diversification Opportunities for PennyMac Mortgage and Air Products

0.75

Correlation Coefficient

PennyMac Mortgage  Air Products

Poor diversification

The 3 months correlation between PennyMac and Air is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Air Products go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Air Products

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 5.87 times less return on investment than Air Products. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 2.03 times less risky than Air Products. It trades about 0.08 of its potential returns per unit of risk. Air Products and is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  26,200  in Air Products and on September 3, 2024 and sell it today you would earn a total of  5,330  from holding Air Products and or generate 20.34% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  Air Products and

PennyMac Mortgage

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 5 (%) 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.

Air Products

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air Products reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Air Products

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

The idea behind PennyMac Mortgage Investment and Air Products and 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.