Correlation Between Ellington Residential and PennyMac Mortgage

Can any of the company-specific risk be diversified away by investing in both Ellington Residential and PennyMac Mortgage 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 Ellington Residential and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ellington Residential Mortgage and PennyMac Mortgage Investment, you can compare the effects of market volatilities on Ellington Residential and PennyMac Mortgage 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 Ellington Residential with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Residential and PennyMac Mortgage.

Diversification Opportunities for Ellington Residential and PennyMac Mortgage

0.51

Correlation Coefficient

Ellington Residential  PennyMac Mortgage

Very weak diversification

The 3 months correlation between Ellington and PennyMac is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Ellington Residential 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 Ellington Residential Mortgage are associated (or correlated) with PennyMac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Mortgage has no effect on the direction of Ellington Residential i.e., Ellington Residential and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Ellington Residential and PennyMac Mortgage

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to generate 1.36 times more return on investment than PennyMac Mortgage. However, Ellington Residential is 1.36 times more volatile than PennyMac Mortgage Investment. It trades about -0.05 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about -0.24 per unit of risk. If you would invest  665.00  in Ellington Residential Mortgage on September 24, 2024 and sell it today you would lose (9.00) from holding Ellington Residential Mortgage or give up 1.35% of portfolio value over 90 days.

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

Ellington Residential Mortgage  vs.  PennyMac Mortgage Investment

Ellington Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ellington Residential Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Ellington Residential is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

PennyMac Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennyMac Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, PennyMac Mortgage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ellington Residential and PennyMac Mortgage

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

The idea behind Ellington Residential Mortgage and PennyMac Mortgage Investment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..