Correlation Between ARMOUR Residential and PennyMac Mortgage
Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential 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 ARMOUR Residential and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ARMOUR Residential REIT and PennyMac Mortgage Investment, you can compare the effects of market volatilities on ARMOUR Residential 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 ARMOUR Residential with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and PennyMac Mortgage.
Diversification Opportunities for ARMOUR Residential and PennyMac Mortgage
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ARMOUR and PennyMac is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and ARMOUR Residential 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 ARMOUR Residential REIT 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 ARMOUR Residential i.e., ARMOUR Residential and PennyMac Mortgage go up and down completely randomly.
Pair Corralation between ARMOUR Residential and PennyMac Mortgage
Considering the 90-day investment horizon ARMOUR Residential REIT is expected to generate 1.12 times more return on investment than PennyMac Mortgage. However, ARMOUR Residential is 1.12 times more volatile than PennyMac Mortgage Investment. It trades about -0.01 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about -0.09 per unit of risk. If you would invest 1,886 in ARMOUR Residential REIT on August 27, 2024 and sell it today you would lose (5.00) from holding ARMOUR Residential REIT or give up 0.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ARMOUR Residential REIT vs. PennyMac Mortgage Investment
Performance |
| Timeline |
| ARMOUR Residential REIT |
| PennyMac Mortgage |
ARMOUR Residential and PennyMac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARMOUR Residential and PennyMac Mortgage
The main advantage of trading using opposite ARMOUR Residential and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential 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.| ARMOUR Residential vs. Blackstone Mortgage Trust | ARMOUR Residential vs. Omega Healthcare Investors | ARMOUR Residential vs. Medical Properties Trust |
| PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. Two Harbors Investments | PennyMac Mortgage vs. MFA Financial | PennyMac Mortgage vs. Invesco Mortgage Capital |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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