Correlation Between Sims Metal and PennyMac Mortgage
Can any of the company-specific risk be diversified away by investing in both Sims Metal 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 Sims Metal and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sims Metal Management and PennyMac Mortgage Investment, you can compare the effects of market volatilities on Sims Metal 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 Sims Metal with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and PennyMac Mortgage.
Diversification Opportunities for Sims Metal and PennyMac Mortgage
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sims and PennyMac is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Sims Metal 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 Sims Metal Management 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 Sims Metal i.e., Sims Metal and PennyMac Mortgage go up and down completely randomly.
Pair Corralation between Sims Metal and PennyMac Mortgage
Assuming the 90 days horizon Sims Metal is expected to generate 2.41 times less return on investment than PennyMac Mortgage. But when comparing it to its historical volatility, Sims Metal Management is 1.15 times less risky than PennyMac Mortgage. It trades about 0.2 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest 1,180 in PennyMac Mortgage Investment on November 28, 2024 and sell it today you would earn a total of 150.00 from holding PennyMac Mortgage Investment or generate 12.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sims Metal Management vs. PennyMac Mortgage Investment
Performance |
| Timeline |
| Sims Metal Management |
| PennyMac Mortgage |
Sims Metal and PennyMac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sims Metal and PennyMac Mortgage
The main advantage of trading using opposite Sims Metal and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal 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.| Sims Metal vs. Jacquet Metal Service | Sims Metal vs. De Grey Mining | Sims Metal vs. MCEWEN MINING INC | Sims Metal vs. UNITED INTERNET N |
| PennyMac Mortgage vs. INDO RAMA SYNTHETIC | PennyMac Mortgage vs. IRONVELD PLC LS | PennyMac Mortgage vs. Daido Steel Co | PennyMac Mortgage vs. KINGBOARD CHEMICAL |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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