Correlation Between PennyMac Finl and Federal National

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

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

Diversification Opportunities for PennyMac Finl and Federal National

-0.37

Correlation Coefficient

PennyMac Finl  Federal National

Very good diversification

The 3 months correlation between PennyMac and Federal is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage and PennyMac Finl 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 Finl Svcs are associated (or correlated) with Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and Federal National go up and down completely randomly.

Pair Corralation between PennyMac Finl and Federal National

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to under-perform the Federal National. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Finl Svcs is 6.83 times less risky than Federal National. The stock trades about -0.11 of its potential returns per unit of risk. The Federal National Mortgage is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  349.00  in Federal National Mortgage on September 15, 2024 and sell it today you would earn a total of  586.00  from holding Federal National Mortgage or generate 167.91% return on investment over 90 days.

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

PennyMac Finl Svcs  vs.  Federal National Mortgage

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.

Federal National Mortgage

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Federal National revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PennyMac Finl and Federal National

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

The idea behind PennyMac Finl Svcs and Federal National Mortgage 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.