Correlation Between PennyMac Mortgage and STMicroelectronics

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

Diversification Opportunities for PennyMac Mortgage and STMicroelectronics

-0.07
  Correlation Coefficient

Good diversification

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

Pair Corralation between PennyMac Mortgage and STMicroelectronics

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.69 times more return on investment than STMicroelectronics. However, PennyMac Mortgage Investment is 1.44 times less risky than STMicroelectronics. It trades about 0.05 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.06 per unit of risk. If you would invest  959.00  in PennyMac Mortgage Investment on September 30, 2024 and sell it today you would earn a total of  251.00  from holding PennyMac Mortgage Investment or generate 26.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

PennyMac Mortgage Investment  vs.  STMicroelectronics NV

 Performance 
       Timeline  
PennyMac Mortgage 

Risk-Adjusted Performance

2 of 100

 
Weak
 
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Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 2 (%) 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.
STMicroelectronics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PennyMac Mortgage and STMicroelectronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PennyMac Mortgage and STMicroelectronics

The main advantage of trading using opposite PennyMac Mortgage and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennyMac Mortgage position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.
The idea behind PennyMac Mortgage Investment and STMicroelectronics NV 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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