Correlation Between PennyMac Mortgage and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both PennyMac Mortgage and ARMOUR Residential 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 PennyMac Mortgage and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PennyMac Mortgage Investment and ARMOUR Residential REIT, you can compare the effects of market volatilities on PennyMac Mortgage and ARMOUR Residential 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 PennyMac Mortgage with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennyMac Mortgage and ARMOUR Residential.
Diversification Opportunities for PennyMac Mortgage and ARMOUR Residential
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PennyMac and ARMOUR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Mortgage Investment and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and PennyMac Mortgage 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 PennyMac Mortgage Investment are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of PennyMac Mortgage i.e., PennyMac Mortgage and ARMOUR Residential go up and down completely randomly.
Pair Corralation between PennyMac Mortgage and ARMOUR Residential
Assuming the 90 days trading horizon PennyMac Mortgage Investment is expected to generate 0.52 times more return on investment than ARMOUR Residential. However, PennyMac Mortgage Investment is 1.91 times less risky than ARMOUR Residential. It trades about -0.11 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.19 per unit of risk. If you would invest 2,487 in PennyMac Mortgage Investment on August 31, 2024 and sell it today you would lose (24.00) from holding PennyMac Mortgage Investment or give up 0.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PennyMac Mortgage Investment vs. ARMOUR Residential REIT
Performance |
| Timeline |
| PennyMac Mortgage |
| ARMOUR Residential REIT |
PennyMac Mortgage and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PennyMac Mortgage and ARMOUR Residential
The main advantage of trading using opposite PennyMac Mortgage and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennyMac Mortgage position performs unexpectedly, ARMOUR Residential 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 ARMOUR Residential will offset losses from the drop in ARMOUR Residential's long position.| PennyMac Mortgage vs. ACRES Commercial Realty | PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. Cherry Hill Mortgage | PennyMac Mortgage vs. Cherry Hill Mortgage |
| ARMOUR Residential vs. ACRES Commercial Realty | ARMOUR Residential vs. Chimera Investment | ARMOUR Residential vs. Cherry Hill Mortgage | ARMOUR Residential vs. Cherry Hill Mortgage |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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