Correlation Between Rithm Capital and PennyMac Mortgage

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

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

Diversification Opportunities for Rithm Capital and PennyMac Mortgage

0.57

Correlation Coefficient

Rithm Capital  PennyMac Mortgage

Very weak diversification

The 3 months correlation between Rithm and PennyMac is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Rithm Capital Corp and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Rithm Capital 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 Rithm Capital Corp are associated (or correlated) with PennyMac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennyMac Mortgage has no effect on the direction of Rithm Capital i.e., Rithm Capital and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Rithm Capital and PennyMac Mortgage

Assuming the 90 days trading horizon Rithm Capital Corp is expected to generate 0.45 times more return on investment than PennyMac Mortgage. However, Rithm Capital Corp is 2.23 times less risky than PennyMac Mortgage. It trades about 0.13 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.05 per unit of risk. If you would invest  2,311  in Rithm Capital Corp on August 31, 2024 and sell it today you would earn a total of  80.00  from holding Rithm Capital Corp or generate 3.46% return on investment over 90 days.

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

Rithm Capital Corp  vs.  PennyMac Mortgage Investment

Rithm Capital Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rithm Capital Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Rithm Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PennyMac Mortgage

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rithm Capital and PennyMac Mortgage

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

The idea behind Rithm Capital Corp and PennyMac Mortgage Investment 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.