Correlation Between MFA Financial and Franklin BSP
Can any of the company-specific risk be diversified away by investing in both MFA Financial and Franklin BSP 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 MFA Financial and Franklin BSP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MFA Financial and Franklin BSP Realty, you can compare the effects of market volatilities on MFA Financial and Franklin BSP 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 MFA Financial with a short position of Franklin BSP. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFA Financial and Franklin BSP.
Diversification Opportunities for MFA Financial and Franklin BSP
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MFA and Franklin is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding MFA Financial and Franklin BSP Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin BSP Realty and MFA Financial 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 MFA Financial are associated (or correlated) with Franklin BSP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin BSP Realty has no effect on the direction of MFA Financial i.e., MFA Financial and Franklin BSP go up and down completely randomly.
Pair Corralation between MFA Financial and Franklin BSP
Assuming the 90 days trading horizon MFA Financial is expected to generate 0.79 times more return on investment than Franklin BSP. However, MFA Financial is 1.27 times less risky than Franklin BSP. It trades about 0.02 of its potential returns per unit of risk. Franklin BSP Realty is currently generating about -0.33 per unit of risk. If you would invest 2,230 in MFA Financial on August 30, 2024 and sell it today you would earn a total of 8.00 from holding MFA Financial or generate 0.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MFA Financial vs. Franklin BSP Realty
Performance |
| Timeline |
| MFA Financial |
| Franklin BSP Realty |
MFA Financial and Franklin BSP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MFA Financial and Franklin BSP
The main advantage of trading using opposite MFA Financial and Franklin BSP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MFA Financial position performs unexpectedly, Franklin BSP 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 Franklin BSP will offset losses from the drop in Franklin BSP's long position.| MFA Financial vs. New York Mortgage | MFA Financial vs. New York Mortgage | MFA Financial vs. Two Harbors Investment | MFA Financial vs. Two Harbors Investment |
| Franklin BSP vs. ACRES Commercial Realty | Franklin BSP vs. Dynex Capital | Franklin BSP vs. PennyMac Mortgage Investment | Franklin BSP vs. AG Mortgage Investment |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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