Correlation Between RLJ Lodging and PennyMac Mortgage
Can any of the company-specific risk be diversified away by investing in both RLJ Lodging 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 RLJ Lodging and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RLJ Lodging Trust and PennyMac Mortgage Investment, you can compare the effects of market volatilities on RLJ Lodging 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 RLJ Lodging with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and PennyMac Mortgage.
Diversification Opportunities for RLJ Lodging and PennyMac Mortgage
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between RLJ and PennyMac is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging 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 RLJ Lodging 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 RLJ Lodging 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 RLJ Lodging i.e., RLJ Lodging and PennyMac Mortgage go up and down completely randomly.
Pair Corralation between RLJ Lodging and PennyMac Mortgage
Assuming the 90 days trading horizon RLJ Lodging Trust is expected to generate 0.58 times more return on investment than PennyMac Mortgage. However, RLJ Lodging Trust is 1.73 times less risky than PennyMac Mortgage. It trades about 0.21 of its potential returns per unit of risk. PennyMac Mortgage Investment is currently generating about 0.03 per unit of risk. If you would invest 2,461 in RLJ Lodging Trust on October 20, 2024 and sell it today you would earn a total of 58.00 from holding RLJ Lodging Trust or generate 2.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RLJ Lodging Trust vs. PennyMac Mortgage Investment
Performance |
| Timeline |
| RLJ Lodging Trust |
| PennyMac Mortgage |
RLJ Lodging and PennyMac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RLJ Lodging and PennyMac Mortgage
The main advantage of trading using opposite RLJ Lodging and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging 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.| RLJ Lodging vs. Diamondrock Hospitality | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Sunstone Hotel Investors |
| PennyMac Mortgage vs. Rithm Capital Corp | PennyMac Mortgage vs. Chimera Investment | PennyMac Mortgage vs. Two Harbors Investment | PennyMac Mortgage vs. ARMOUR Residential REIT |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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