Correlation Between PennyMac Mortgage and Solstad Offshore

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

Diversification Opportunities for PennyMac Mortgage and Solstad Offshore

0.48

Correlation Coefficient

PennyMac Mortgage  Solstad Offshore

Very weak diversification

The 3 months correlation between PennyMac and Solstad is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Solstad Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offshore ASA 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 Solstad Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offshore ASA has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Solstad Offshore go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Solstad Offshore

Assuming the 90 days horizon PennyMac Mortgage Investment is expected to generate 0.26 times more return on investment than Solstad Offshore. However, PennyMac Mortgage Investment is 3.86 times less risky than Solstad Offshore. It trades about 0.02 of its potential returns per unit of risk. Solstad Offshore ASA is currently generating about -0.01 per unit of risk. If you would invest  1,212  in PennyMac Mortgage Investment on September 28, 2024 and sell it today you would earn a total of  18.00  from holding PennyMac Mortgage Investment or generate 1.49% 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.  Solstad Offshore ASA

PennyMac Mortgage

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days PennyMac Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Solstad Offshore ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solstad Offshore ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Solstad Offshore unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Mortgage and Solstad Offshore

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

The idea behind PennyMac Mortgage Investment and Solstad Offshore ASA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.