Correlation Between Lument Finance and PennyMac Mortgage
Can any of the company-specific risk be diversified away by investing in both Lument Finance 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 Lument Finance and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lument Finance Trust and PennyMac Mortgage Investment, you can compare the effects of market volatilities on Lument Finance 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 Lument Finance with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lument Finance and PennyMac Mortgage.
Diversification Opportunities for Lument Finance and PennyMac Mortgage
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lument and PennyMac is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Lument Finance Trust and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and Lument Finance 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 Lument Finance Trust 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 Lument Finance i.e., Lument Finance and PennyMac Mortgage go up and down completely randomly.
Pair Corralation between Lument Finance and PennyMac Mortgage
Assuming the 90 days trading horizon Lument Finance Trust is expected to generate 4.19 times more return on investment than PennyMac Mortgage. However, Lument Finance is 4.19 times more volatile than PennyMac Mortgage Investment. It trades about 0.04 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.06 per unit of risk. If you would invest 1,601 in Lument Finance Trust on August 27, 2024 and sell it today you would earn a total of 644.00 from holding Lument Finance Trust or generate 40.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.18% |
| Values | Daily Returns |
Lument Finance Trust vs. PennyMac Mortgage Investment
Performance |
| Timeline |
| Lument Finance Trust |
| PennyMac Mortgage |
Lument Finance and PennyMac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lument Finance and PennyMac Mortgage
The main advantage of trading using opposite Lument Finance and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lument Finance 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.| Lument Finance vs. Rithm Capital Corp | Lument Finance vs. PennyMac Mortgage Investment | Lument Finance vs. AGNC Investment Corp |
| PennyMac Mortgage vs. Annaly Capital Management | PennyMac Mortgage vs. AGNC Investment Corp | PennyMac Mortgage vs. Invesco Mortgage Capital | 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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