Correlation Between Cherry Hill and MFA Financial

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Can any of the company-specific risk be diversified away by investing in both Cherry Hill 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 Cherry Hill and MFA Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cherry Hill Mortgage and MFA Financial, you can compare the effects of market volatilities on Cherry Hill 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 Cherry Hill with a short position of MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cherry Hill and MFA Financial.

Diversification Opportunities for Cherry Hill and MFA Financial

CherryMFADiversified AwayCherryMFADiversified Away100%
0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between Cherry and MFA is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial and Cherry Hill 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 Cherry Hill Mortgage 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 Cherry Hill i.e., Cherry Hill and MFA Financial go up and down completely randomly.

Pair Corralation between Cherry Hill and MFA Financial

Assuming the 90 days trading horizon Cherry Hill Mortgage is expected to under-perform the MFA Financial. In addition to that, Cherry Hill is 2.04 times more volatile than MFA Financial. It trades about -0.1 of its total potential returns per unit of risk. MFA Financial is currently generating about 0.09 per unit of volatility. If you would invest  2,459  in MFA Financial on November 25, 2024 and sell it today you would earn a total of  16.00  from holding MFA Financial or generate 0.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cherry Hill Mortgage  vs.  MFA Financial

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-8-6-4-202
JavaScript chart by amCharts 3.21.15CHMI-PA MFA-PC
       Timeline  
Cherry Hill Mortgage 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Cherry Hill Mortgage are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cherry Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2121.52222.523
MFA Financial 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in MFA Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, MFA Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb23.82424.224.424.624.82525.2

Cherry Hill and MFA Financial Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.13-1.62-1.11-0.6-0.090.360.871.381.892.4 0.20.40.60.81.01.2
JavaScript chart by amCharts 3.21.15CHMI-PA MFA-PC
       Returns  

Pair Trading with Cherry Hill and MFA Financial

The main advantage of trading using opposite Cherry Hill and MFA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cherry Hill 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.
The idea behind Cherry Hill Mortgage and MFA Financial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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