Correlation Between ARMOUR Residential and Lument Finance
Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential and Lument Finance 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 ARMOUR Residential and Lument Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ARMOUR Residential REIT and Lument Finance Trust, you can compare the effects of market volatilities on ARMOUR Residential and Lument Finance 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 ARMOUR Residential with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and Lument Finance.
Diversification Opportunities for ARMOUR Residential and Lument Finance
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ARMOUR and Lument is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and ARMOUR Residential 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 ARMOUR Residential REIT are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Lument Finance go up and down completely randomly.
Pair Corralation between ARMOUR Residential and Lument Finance
Assuming the 90 days trading horizon ARMOUR Residential is expected to generate 1.58 times less return on investment than Lument Finance. But when comparing it to its historical volatility, ARMOUR Residential REIT is 1.74 times less risky than Lument Finance. It trades about 0.12 of its potential returns per unit of risk. Lument Finance Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,636 in Lument Finance Trust on August 27, 2024 and sell it today you would earn a total of 609.00 from holding Lument Finance Trust or generate 37.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.39% |
| Values | Daily Returns |
ARMOUR Residential REIT vs. Lument Finance Trust
Performance |
| Timeline |
| ARMOUR Residential REIT |
| Lument Finance Trust |
ARMOUR Residential and Lument Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARMOUR Residential and Lument Finance
The main advantage of trading using opposite ARMOUR Residential and Lument Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential position performs unexpectedly, Lument Finance 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 Lument Finance will offset losses from the drop in Lument Finance's long position.| ARMOUR Residential vs. Annaly Capital Management | ARMOUR Residential vs. AGNC Investment Corp | ARMOUR Residential vs. Invesco Mortgage Capital | ARMOUR Residential vs. Invesco Mortgage Capital |
| Lument Finance vs. Rithm Capital Corp | Lument Finance vs. PennyMac Mortgage Investment | Lument Finance vs. AGNC Investment Corp |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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