Correlation Between MFA Financial and PennyMac Mortgage
Can any of the company-specific risk be diversified away by investing in both MFA Financial 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 MFA Financial and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MFA Financial and PennyMac Mortgage Investment, you can compare the effects of market volatilities on MFA Financial 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 MFA Financial with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFA Financial and PennyMac Mortgage.
Diversification Opportunities for MFA Financial and PennyMac Mortgage
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MFA and PennyMac is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding MFA Financial and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and MFA Financial 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 MFA Financial 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 MFA Financial i.e., MFA Financial and PennyMac Mortgage go up and down completely randomly.
Pair Corralation between MFA Financial and PennyMac Mortgage
Assuming the 90 days trading horizon MFA Financial is expected to generate 0.99 times more return on investment than PennyMac Mortgage. However, MFA Financial is 1.01 times less risky than PennyMac Mortgage. It trades about 0.02 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 2,221 in MFA Financial on August 29, 2024 and sell it today you would earn a total of 6.00 from holding MFA Financial or generate 0.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MFA Financial vs. PennyMac Mortgage Investment
Performance |
| Timeline |
| MFA Financial |
| PennyMac Mortgage |
MFA Financial and PennyMac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MFA Financial and PennyMac Mortgage
The main advantage of trading using opposite MFA Financial and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MFA Financial 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.| MFA Financial vs. New York Mortgage | MFA Financial vs. New York Mortgage | MFA Financial vs. Two Harbors Investment | MFA Financial vs. Two Harbors Investment |
| PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. PennyMac Mortgage 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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