Correlation Between X FAB and PennyMac Mortgage

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Can any of the company-specific risk be diversified away by investing in both X FAB 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 X FAB and PennyMac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between X FAB Silicon Foundries and PennyMac Mortgage Investment, you can compare the effects of market volatilities on X FAB 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 X FAB with a short position of PennyMac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and PennyMac Mortgage.

Diversification Opportunities for X FAB and PennyMac Mortgage

-0.06
  Correlation Coefficient

Good diversification

The 3 months correlation between XFB and PennyMac is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and PennyMac Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennyMac Mortgage and X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and PennyMac Mortgage go up and down completely randomly.

Pair Corralation between X FAB and PennyMac Mortgage

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 2.35 times more return on investment than PennyMac Mortgage. However, X FAB is 2.35 times more volatile than PennyMac Mortgage Investment. It trades about 0.01 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  500.00  in X FAB Silicon Foundries on October 30, 2024 and sell it today you would lose (1.00) from holding X FAB Silicon Foundries or give up 0.2% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

X FAB Silicon Foundries  vs.  PennyMac Mortgage Investment

 Performance 
       Timeline  
X FAB Silicon 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, X FAB exhibited solid returns over the last few months and may actually be approaching a breakup point.
PennyMac Mortgage 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days PennyMac Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PennyMac Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

X FAB and PennyMac Mortgage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with X FAB and PennyMac Mortgage

The main advantage of trading using opposite X FAB and PennyMac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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.
The idea behind X FAB Silicon Foundries and PennyMac Mortgage Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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