Correlation Between PennyMac Mortgage and Capri Holdings

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

Diversification Opportunities for PennyMac Mortgage and Capri Holdings

-0.07

Correlation Coefficient

PennyMac Mortgage  Capri Holdings

Good diversification

The 3 months correlation between PennyMac and Capri is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Capri Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capri Holdings 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 Capri Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capri Holdings has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Capri Holdings go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Capri Holdings

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.42 times more return on investment than Capri Holdings. However, PennyMac Mortgage Investment is 2.39 times less risky than Capri Holdings. It trades about 0.03 of its potential returns per unit of risk. Capri Holdings Limited is currently generating about -0.02 per unit of risk. If you would invest  1,051  in PennyMac Mortgage Investment on September 4, 2024 and sell it today you would earn a total of  229.00  from holding PennyMac Mortgage Investment or generate 21.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

PennyMac Mortgage Investment  vs.  Capri Holdings Limited

PennyMac Mortgage

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 7 (%) 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.

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PennyMac Mortgage and Capri Holdings

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

The idea behind PennyMac Mortgage Investment and Capri Holdings Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.