Correlation Between PennyMac Mortgage and Franklin BSP

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

Diversification Opportunities for PennyMac Mortgage and Franklin BSP

0.22

Correlation Coefficient

PennyMac Mortgage  Franklin BSP

Modest diversification

The 3 months correlation between PennyMac and Franklin is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and Franklin BSP Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin BSP Realty 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 Franklin BSP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin BSP Realty has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and Franklin BSP go up and down completely randomly.

Pair Corralation between PennyMac Mortgage and Franklin BSP

Considering the 90-day investment horizon PennyMac Mortgage Investment is expected to under-perform the Franklin BSP. But the stock apears to be less risky and, when comparing its historical volatility, PennyMac Mortgage Investment is 1.25 times less risky than Franklin BSP. The stock trades about -0.11 of its potential returns per unit of risk. The Franklin BSP Realty is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,314  in Franklin BSP Realty on September 24, 2024 and sell it today you would lose (47.00) from holding Franklin BSP Realty or give up 3.58% of portfolio value over 90 days.

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

PennyMac Mortgage Investment  vs.  Franklin BSP Realty

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 comparatively stable primary indicators, PennyMac Mortgage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Franklin BSP Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin BSP Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Franklin BSP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PennyMac Mortgage and Franklin BSP

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

The idea behind PennyMac Mortgage Investment and Franklin BSP Realty 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.