Correlation Between PennyMac Mortgage and KKR Real

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

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

Diversification Opportunities for PennyMac Mortgage and KKR Real

0.58

Correlation Coefficient

PennyMac Mortgage  KKR Real

Very weak diversification

The 3 months correlation between PennyMac and KKR is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and KKR Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KKR Real Estate and PennyMac Mortgage 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 Mortgage Investment are associated (or correlated) with KKR Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KKR Real Estate has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and KKR Real go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and KKR Real

Assuming the 90 days trading horizon PennyMac Mortgage Investment is expected to under-perform the KKR Real. But the preferred stock apears to be less risky and, when comparing its historical volatility, PennyMac Mortgage Investment is 1.48 times less risky than KKR Real. The preferred stock trades about -0.18 of its potential returns per unit of risk. The KKR Real Estate is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,147  in KKR Real Estate on September 26, 2024 and sell it today you would lose (146.00) from holding KKR Real Estate or give up 6.8% of portfolio value over 90 days.

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

PennyMac Mortgage Investment  vs.  KKR Real Estate

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 latest weak performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

KKR Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KKR Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PennyMac Mortgage and KKR Real

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

The idea behind PennyMac Mortgage Investment and KKR Real Estate 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.