Correlation Between ARMOUR Residential and MFA Financial
Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential 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 ARMOUR Residential and MFA Financial 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 MFA Financial, you can compare the effects of market volatilities on ARMOUR Residential 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 ARMOUR Residential with a short position of MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and MFA Financial.
Diversification Opportunities for ARMOUR Residential and MFA Financial
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ARMOUR and MFA is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial 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 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 ARMOUR Residential i.e., ARMOUR Residential and MFA Financial go up and down completely randomly.
Pair Corralation between ARMOUR Residential and MFA Financial
Assuming the 90 days trading horizon ARMOUR Residential is expected to generate 6.83 times less return on investment than MFA Financial. In addition to that, ARMOUR Residential is 1.2 times more volatile than MFA Financial. It trades about 0.03 of its total potential returns per unit of risk. MFA Financial is currently generating about 0.25 per unit of volatility. If you would invest 2,119 in MFA Financial on November 9, 2024 and sell it today you would earn a total of 98.00 from holding MFA Financial or generate 4.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ARMOUR Residential REIT vs. MFA Financial
Performance |
| Timeline |
| ARMOUR Residential REIT |
| MFA Financial |
ARMOUR Residential and MFA Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARMOUR Residential and MFA Financial
The main advantage of trading using opposite ARMOUR Residential and MFA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential 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.| ARMOUR Residential vs. Cherry Hill Mortgage | ARMOUR Residential vs. AGNC Investment Corp | ARMOUR Residential vs. Chimera Investment | ARMOUR Residential vs. Two Harbors Investment |
| MFA Financial vs. Two Harbors Investment | MFA Financial vs. Invesco Mortgage Capital | MFA Financial vs. Chimera Investment | MFA Financial vs. Chimera 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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