Correlation Between PennyMac Finl and Waterstone Financial

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

Diversification Opportunities for PennyMac Finl and Waterstone Financial

-0.03

Correlation Coefficient

PennyMac Finl  Waterstone Financial

Good diversification

The 3 months correlation between PennyMac and Waterstone is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of PennyMac Finl i.e., PennyMac Finl and Waterstone Financial go up and down completely randomly.

Pair Corralation between PennyMac Finl and Waterstone Financial

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to generate 1.13 times more return on investment than Waterstone Financial. However, PennyMac Finl is 1.13 times more volatile than Waterstone Financial. It trades about 0.07 of its potential returns per unit of risk. Waterstone Financial is currently generating about -0.21 per unit of risk. If you would invest  10,248  in PennyMac Finl Svcs on September 18, 2024 and sell it today you would earn a total of  160.00  from holding PennyMac Finl Svcs or generate 1.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

PennyMac Finl Svcs  vs.  Waterstone Financial

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.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PennyMac Finl and Waterstone Financial

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

The idea behind PennyMac Finl Svcs and Waterstone Financial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.