Correlation Between Ares Commercial and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both Ares Commercial 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 Ares Commercial and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ares Commercial Real and ARMOUR Residential REIT, you can compare the effects of market volatilities on Ares Commercial 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 Ares Commercial with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and ARMOUR Residential.
Diversification Opportunities for Ares Commercial and ARMOUR Residential
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ares and ARMOUR is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real 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 Ares Commercial 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 Ares Commercial Real 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 Ares Commercial i.e., Ares Commercial and ARMOUR Residential go up and down completely randomly.
Pair Corralation between Ares Commercial and ARMOUR Residential
Given the investment horizon of 90 days Ares Commercial Real is expected to generate 2.66 times more return on investment than ARMOUR Residential. However, Ares Commercial is 2.66 times more volatile than ARMOUR Residential REIT. It trades about 0.23 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.01 per unit of risk. If you would invest 646.00 in Ares Commercial Real on August 28, 2024 and sell it today you would earn a total of 83.00 from holding Ares Commercial Real or generate 12.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ares Commercial Real vs. ARMOUR Residential REIT
Performance |
| Timeline |
| Ares Commercial Real |
| ARMOUR Residential REIT |
Ares Commercial and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ares Commercial and ARMOUR Residential
The main advantage of trading using opposite Ares Commercial and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Commercial 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.| Ares Commercial vs. Two Harbors Investments | Ares Commercial vs. Apollo Commercial Real | Ares Commercial vs. Ellington Financial | Ares Commercial vs. Dynex Capital |
| ARMOUR Residential vs. Blackstone Mortgage Trust | ARMOUR Residential vs. Omega Healthcare Investors | ARMOUR Residential vs. Medical Properties Trust |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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