Correlation Between Vestas Wind and PennyMac Mortgage

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

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

Diversification Opportunities for Vestas Wind and PennyMac Mortgage

-0.46

Correlation Coefficient

Vestas Wind  PennyMac Mortgage

Very good diversification

The 3 months correlation between Vestas and PennyMac is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Vestas Wind 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 Vestas Wind Systems 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 Vestas Wind i.e., Vestas Wind and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between Vestas Wind and PennyMac Mortgage

Assuming the 90 days trading horizon Vestas Wind Systems is expected to under-perform the PennyMac Mortgage. In addition to that, Vestas Wind is 3.27 times more volatile than PennyMac Mortgage Investment. It trades about -0.16 of its total potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.14 per unit of volatility. If you would invest  1,202  in PennyMac Mortgage Investment on September 5, 2024 and sell it today you would earn a total of  98.00  from holding PennyMac Mortgage Investment or generate 8.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Vestas Wind Systems  vs.  PennyMac Mortgage Investment

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

PennyMac Mortgage

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PennyMac Mortgage Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennyMac Mortgage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vestas Wind and PennyMac Mortgage

The main advantage of trading using opposite Vestas Wind and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind 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 Vestas Wind Systems 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.