Correlation Between Federal Home and PennyMac Finl

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

By analyzing existing cross correlation between Federal Home Loan and PennyMac Finl Svcs, you can compare the effects of market volatilities on Federal Home and PennyMac Finl 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 Federal Home with a short position of PennyMac Finl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Home and PennyMac Finl.

Diversification Opportunities for Federal Home and PennyMac Finl

-0.35

Correlation Coefficient

Federal Home  PennyMac Finl

Very good diversification

The 3 months correlation between Federal and PennyMac is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and PennyMac Finl Svcs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Finl Svcs and Federal Home 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 Federal Home Loan are associated (or correlated) with PennyMac Finl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Finl Svcs has no effect on the direction of Federal Home i.e., Federal Home and PennyMac Finl go up and down completely randomly.

Pair Corralation between Federal Home and PennyMac Finl

Assuming the 90 days horizon Federal Home Loan is expected to generate 7.97 times more return on investment than PennyMac Finl. However, Federal Home is 7.97 times more volatile than PennyMac Finl Svcs. It trades about 0.17 of its potential returns per unit of risk. PennyMac Finl Svcs is currently generating about -0.11 per unit of risk. If you would invest  633.00  in Federal Home Loan on September 16, 2024 and sell it today you would earn a total of  1,017  from holding Federal Home Loan or generate 160.66% return on investment over 90 days.

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

Federal Home Loan  vs.  PennyMac Finl Svcs

Federal Home Loan

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Federal Home displayed solid returns over the last few months and may actually be approaching a breakup point.

PennyMac Finl Svcs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennyMac Finl Svcs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Federal Home and PennyMac Finl

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

The idea behind Federal Home Loan and PennyMac Finl Svcs 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.