Correlation Between Federal National and PennyMac Finl

Can any of the company-specific risk be diversified away by investing in both Federal National 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 National 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 National Mortgage and PennyMac Finl Svcs, you can compare the effects of market volatilities on Federal National 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 National with a short position of PennyMac Finl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and PennyMac Finl.

Diversification Opportunities for Federal National and PennyMac Finl

-0.37

Correlation Coefficient

Federal National  PennyMac Finl

Very good diversification

The 3 months correlation between Federal and PennyMac is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage 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 National 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 National Mortgage 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 National i.e., Federal National and PennyMac Finl go up and down completely randomly.

Pair Corralation between Federal National and PennyMac Finl

Assuming the 90 days horizon Federal National Mortgage is expected to generate 6.78 times more return on investment than PennyMac Finl. However, Federal National is 6.78 times more volatile than PennyMac Finl Svcs. It trades about 0.21 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  618.00  in Federal National Mortgage on September 15, 2024 and sell it today you would earn a total of  1,157  from holding Federal National Mortgage or generate 187.22% return on investment over 90 days.

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

Federal National Mortgage  vs.  PennyMac Finl Svcs

Federal National Mortgage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Federal National reported 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 uncertain 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 National and PennyMac Finl

The main advantage of trading using opposite Federal National and PennyMac Finl positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal National 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 National Mortgage 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.