I found that you can show focus on hover AND keep keyboard focus/controls, by adding a hidden option with style="display:hidden" and setting that as the default value of your Mat Select.
Now all of the options are unselected initially and will only show focus on options that are hovered. If the user tabs or uses keyboard controls the focus stays within the Mat Select and is just as keyboard accessible.
Hope this helps someone out there that's having the same issue!
//HTMl
<mat-form-field>
<mat-label>Select</mat-label>
<mat-select #mySelect value="initialSelection">
<mat-option value ="empty" style="display: none;"></mat-option>
<mat-option *ngFor="let selection of selections" [value]="selection.selectionId">
{{ selection.selectionId }}
</mat-option>
</mat-select>
</mat-form-field>
//TS
public initialSelection = 'empty';