Correlation Between Invesco Mortgage and MFA Financial
Can any of the company-specific risk be diversified away by investing in both Invesco Mortgage 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 Invesco Mortgage and MFA Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco Mortgage Capital and MFA Financial, you can compare the effects of market volatilities on Invesco Mortgage 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 Invesco Mortgage with a short position of MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Mortgage and MFA Financial.
Diversification Opportunities for Invesco Mortgage and MFA Financial
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Invesco and MFA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Mortgage Capital and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial and Invesco Mortgage 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 Invesco Mortgage Capital 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 Invesco Mortgage i.e., Invesco Mortgage and MFA Financial go up and down completely randomly.
Pair Corralation between Invesco Mortgage and MFA Financial
Assuming the 90 days trading horizon Invesco Mortgage is expected to generate 1.26 times less return on investment than MFA Financial. But when comparing it to its historical volatility, Invesco Mortgage Capital is 1.48 times less risky than MFA Financial. It trades about 0.23 of its potential returns per unit of risk. MFA Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,390 in MFA Financial on August 30, 2024 and sell it today you would earn a total of 74.00 from holding MFA Financial or generate 3.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco Mortgage Capital vs. MFA Financial
Performance |
| Timeline |
| Invesco Mortgage Capital |
| MFA Financial |
Invesco Mortgage and MFA Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco Mortgage and MFA Financial
The main advantage of trading using opposite Invesco Mortgage and MFA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Mortgage 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.| Invesco Mortgage vs. New York Mortgage | Invesco Mortgage vs. New York Mortgage | Invesco Mortgage vs. Two Harbors Investment | Invesco Mortgage vs. Two Harbors Investment |
| MFA Financial vs. AG Mortgage Investment | MFA Financial vs. AG Mortgage Investment | MFA Financial vs. Invesco Mortgage Capital | MFA Financial vs. Invesco Mortgage 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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