Correlation Between PennyMac Mortgage and NexPoint Real

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

Diversification Opportunities for PennyMac Mortgage and NexPoint Real

0.08

Correlation Coefficient

PennyMac Mortgage  NexPoint Real

Significant diversification

The 3 months correlation between PennyMac and NexPoint is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and NexPoint Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexPoint 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 NexPoint Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexPoint Real Estate has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and NexPoint Real go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and NexPoint Real

Assuming the 90 days trading horizon PennyMac Mortgage Investment is expected to under-perform the NexPoint Real. But the preferred stock apears to be less risky and, when comparing its historical volatility, PennyMac Mortgage Investment is 1.27 times less risky than NexPoint Real. The preferred stock trades about -0.18 of its potential returns per unit of risk. The NexPoint Real Estate is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,299  in NexPoint Real Estate on September 26, 2024 and sell it today you would lose (39.00) from holding NexPoint Real Estate or give up 1.7% of portfolio value over 90 days.

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

PennyMac Mortgage Investment  vs.  NexPoint 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.

NexPoint Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NexPoint Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NexPoint Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PennyMac Mortgage and NexPoint Real

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

The idea behind PennyMac Mortgage Investment and NexPoint 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.