Correlation Between ARMOUR Residential and Ready Capital
Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential and Ready Capital 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 Ready Capital 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 Ready Capital, you can compare the effects of market volatilities on ARMOUR Residential and Ready Capital 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 Ready Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and Ready Capital.
Diversification Opportunities for ARMOUR Residential and Ready Capital
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ARMOUR and Ready is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ready Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital 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 Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Ready Capital go up and down completely randomly.
Pair Corralation between ARMOUR Residential and Ready Capital
Assuming the 90 days trading horizon ARMOUR Residential REIT is expected to generate 1.48 times more return on investment than Ready Capital. However, ARMOUR Residential is 1.48 times more volatile than Ready Capital. It trades about 0.03 of its potential returns per unit of risk. Ready Capital is currently generating about -0.09 per unit of risk. If you would invest 2,145 in ARMOUR Residential REIT on November 9, 2024 and sell it today you would earn a total of 12.00 from holding ARMOUR Residential REIT or generate 0.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ARMOUR Residential REIT vs. Ready Capital
Performance |
| Timeline |
| ARMOUR Residential REIT |
| Ready Capital |
ARMOUR Residential and Ready Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARMOUR Residential and Ready Capital
The main advantage of trading using opposite ARMOUR Residential and Ready Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential position performs unexpectedly, Ready Capital 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 Ready Capital will offset losses from the drop in Ready Capital'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 |
| Ready Capital vs. PennyMac Mortgage Investment | Ready Capital vs. ARMOUR Residential REIT | Ready Capital vs. Rithm Capital Corp | Ready Capital vs. Dynex Capital |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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