Correlation Between Arbor Realty and MFA Financial
Can any of the company-specific risk be diversified away by investing in both Arbor Realty and MFA Financial 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 Arbor Realty and MFA Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arbor Realty Trust and MFA Financial, you can compare the effects of market volatilities on Arbor Realty and MFA Financial 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 Arbor Realty with a short position of MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbor Realty and MFA Financial.
Diversification Opportunities for Arbor Realty and MFA Financial
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Arbor and MFA is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial and Arbor Realty 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 Arbor Realty Trust are associated (or correlated) with MFA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFA Financial has no effect on the direction of Arbor Realty i.e., Arbor Realty and MFA Financial go up and down completely randomly.
Pair Corralation between Arbor Realty and MFA Financial
Assuming the 90 days trading horizon Arbor Realty is expected to generate 1.61 times less return on investment than MFA Financial. In addition to that, Arbor Realty is 1.24 times more volatile than MFA Financial. It trades about 0.05 of its total potential returns per unit of risk. MFA Financial is currently generating about 0.09 per unit of volatility. If you would invest 1,568 in MFA Financial on August 27, 2024 and sell it today you would earn a total of 650.00 from holding MFA Financial or generate 41.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arbor Realty Trust vs. MFA Financial
Performance |
| Timeline |
| Arbor Realty Trust |
| MFA Financial |
Arbor Realty and MFA Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arbor Realty and MFA Financial
The main advantage of trading using opposite Arbor Realty and MFA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbor Realty position performs unexpectedly, MFA Financial 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 MFA Financial will offset losses from the drop in MFA Financial's long position.| Arbor Realty vs. Rithm Capital Corp | Arbor Realty vs. PennyMac Mortgage Investment | Arbor Realty vs. AGNC Investment Corp |
| MFA Financial vs. New York Mortgage | MFA Financial vs. New York Mortgage | MFA Financial vs. Two Harbors Investment | MFA Financial vs. Two Harbors 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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