Correlation Between ARMOUR Residential and Ellington Residential
Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential and Ellington 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 ARMOUR Residential and Ellington Residential 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 Ellington Residential Mortgage, you can compare the effects of market volatilities on ARMOUR Residential and Ellington 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 ARMOUR Residential with a short position of Ellington Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and Ellington Residential.
Diversification Opportunities for ARMOUR Residential and Ellington Residential
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ARMOUR and Ellington is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential 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 Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Ellington Residential go up and down completely randomly.
Pair Corralation between ARMOUR Residential and Ellington Residential
Considering the 90-day investment horizon ARMOUR Residential REIT is expected to under-perform the Ellington Residential. But the stock apears to be less risky and, when comparing its historical volatility, ARMOUR Residential REIT is 1.04 times less risky than Ellington Residential. The stock trades about -0.06 of its potential returns per unit of risk. The Ellington Residential Mortgage is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 676.00 in Ellington Residential Mortgage on August 26, 2024 and sell it today you would earn a total of 0.00 from holding Ellington Residential Mortgage or generate 0.0% 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. Ellington Residential Mortgage
Performance |
| Timeline |
| ARMOUR Residential REIT |
| Ellington Residential |
ARMOUR Residential and Ellington Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARMOUR Residential and Ellington Residential
The main advantage of trading using opposite ARMOUR Residential and Ellington Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential position performs unexpectedly, Ellington 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 Ellington Residential will offset losses from the drop in Ellington Residential's long position.| ARMOUR Residential vs. Blackstone Mortgage Trust | ARMOUR Residential vs. Omega Healthcare Investors | ARMOUR Residential vs. Medical Properties Trust |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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