Correlation Between PennyMac Mortgage and ORIX

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

Diversification Opportunities for PennyMac Mortgage and ORIX

-0.49

Correlation Coefficient

PennyMac Mortgage  ORIX

Very good diversification

The 3 months correlation between PennyMac and ORIX is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and ORIX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ORIX 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 ORIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ORIX has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and ORIX go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and ORIX

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.43 times more return on investment than ORIX. However, PennyMac Mortgage Investment is 2.31 times less risky than ORIX. It trades about 0.07 of its potential returns per unit of risk. ORIX Corporation is currently generating about -0.02 per unit of risk. If you would invest  1,231  in PennyMac Mortgage Investment on September 3, 2024 and sell it today you would earn a total of  49.00  from holding PennyMac Mortgage Investment or generate 3.98% return on investment over 90 days.

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

PennyMac Mortgage Investment  vs.  ORIX Corp.

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.

ORIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ORIX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ORIX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PennyMac Mortgage and ORIX

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

The idea behind PennyMac Mortgage Investment and ORIX Corporation 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .