Correlation Between Cherry Hill and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both Cherry Hill and ARMOUR 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 Cherry Hill and ARMOUR Residential 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 ARMOUR Residential REIT, you can compare the effects of market volatilities on Cherry Hill and ARMOUR 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 Cherry Hill with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cherry Hill and ARMOUR Residential.
Diversification Opportunities for Cherry Hill and ARMOUR Residential
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cherry and ARMOUR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT 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 ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Cherry Hill i.e., Cherry Hill and ARMOUR Residential go up and down completely randomly.
Pair Corralation between Cherry Hill and ARMOUR Residential
Assuming the 90 days trading horizon Cherry Hill Mortgage is expected to under-perform the ARMOUR Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, Cherry Hill Mortgage is 1.39 times less risky than ARMOUR Residential. The preferred stock trades about -0.22 of its potential returns per unit of risk. The ARMOUR Residential REIT is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest 2,301 in ARMOUR Residential REIT on August 24, 2024 and sell it today you would lose (64.00) from holding ARMOUR Residential REIT or give up 2.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cherry Hill Mortgage vs. ARMOUR Residential REIT
Performance |
| Timeline |
| Cherry Hill Mortgage |
| ARMOUR Residential REIT |
Cherry Hill and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cherry Hill and ARMOUR Residential
The main advantage of trading using opposite Cherry Hill and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cherry Hill position performs unexpectedly, ARMOUR 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 ARMOUR Residential will offset losses from the drop in ARMOUR Residential's long position.| Cherry Hill vs. Chimera Investment | Cherry Hill vs. AG Mortgage Investment | Cherry Hill vs. PennyMac Mortgage Investment | Cherry Hill vs. Lument Finance Trust |
| ARMOUR Residential vs. Annaly Capital Management | ARMOUR Residential vs. Annaly Capital Management | ARMOUR Residential vs. AGNC Investment Corp | ARMOUR Residential vs. New York Mortgage |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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