Correlation Between PennyMac Mortgage and DAIRY FARM

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

Diversification Opportunities for PennyMac Mortgage and DAIRY FARM

0.43

Correlation Coefficient

PennyMac Mortgage  DAIRY FARM

Very weak diversification

The 3 months correlation between PennyMac and DAIRY is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and DAIRY FARM INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAIRY FARM INTL 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 DAIRY FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAIRY FARM INTL has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and DAIRY FARM go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and DAIRY FARM

Assuming the 90 days horizon PennyMac Mortgage is expected to generate 8.02 times less return on investment than DAIRY FARM. But when comparing it to its historical volatility, PennyMac Mortgage Investment is 2.63 times less risky than DAIRY FARM. It trades about 0.06 of its potential returns per unit of risk. DAIRY FARM INTL is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  168.00  in DAIRY FARM INTL on September 19, 2024 and sell it today you would earn a total of  48.00  from holding DAIRY FARM INTL or generate 28.57% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  DAIRY FARM INTL

PennyMac Mortgage

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 4 (%) 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.

DAIRY FARM INTL

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with PennyMac Mortgage and DAIRY FARM

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

The idea behind PennyMac Mortgage Investment and DAIRY FARM INTL 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.