Correlation Between Ellington Residential and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both Ellington Residential 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 Ellington Residential and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ellington Residential Mortgage and ARMOUR Residential REIT, you can compare the effects of market volatilities on Ellington Residential 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 Ellington Residential with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Residential and ARMOUR Residential.
Diversification Opportunities for Ellington Residential and ARMOUR Residential
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ellington and ARMOUR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential 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 Ellington 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 Ellington Residential 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 Ellington Residential i.e., Ellington Residential and ARMOUR Residential go up and down completely randomly.
Pair Corralation between Ellington Residential and ARMOUR Residential
Given the investment horizon of 90 days Ellington Residential Mortgage is expected to generate 0.83 times more return on investment than ARMOUR Residential. However, Ellington Residential Mortgage is 1.2 times less risky than ARMOUR Residential. It trades about 0.03 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.0 per unit of risk. If you would invest 563.00 in Ellington Residential Mortgage on August 23, 2024 and sell it today you would earn a total of 102.00 from holding Ellington Residential Mortgage or generate 18.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Ellington Residential Mortgage vs. ARMOUR Residential REIT
Performance |
Timeline |
Ellington Residential |
ARMOUR Residential REIT |
Ellington Residential and ARMOUR Residential Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ellington Residential and ARMOUR Residential
The main advantage of trading using opposite Ellington Residential and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ellington Residential 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.Ellington Residential vs. Dynex Capital | Ellington Residential vs. Orchid Island Capital | Ellington Residential vs. ARMOUR Residential REIT | Ellington Residential vs. Ready Capital Corp |
ARMOUR Residential vs. Ellington Financial | ARMOUR Residential vs. Two Harbors Investments | ARMOUR Residential vs. Dynex Capital | ARMOUR Residential vs. Ellington Residential 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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