Correlation Between MFA Financial and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both MFA Financial 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 MFA Financial and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MFA Financial and ARMOUR Residential REIT, you can compare the effects of market volatilities on MFA Financial 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 MFA Financial with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFA Financial and ARMOUR Residential.
Diversification Opportunities for MFA Financial and ARMOUR Residential
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MFA and ARMOUR is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding MFA Financial 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 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 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 MFA Financial i.e., MFA Financial and ARMOUR Residential go up and down completely randomly.
Pair Corralation between MFA Financial and ARMOUR Residential
Assuming the 90 days trading horizon MFA Financial is expected to generate 0.98 times more return on investment than ARMOUR Residential. However, MFA Financial is 1.02 times less risky than ARMOUR Residential. It trades about 0.16 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.13 per unit of risk. If you would invest 1,854 in MFA Financial on August 24, 2024 and sell it today you would earn a total of 595.00 from holding MFA Financial or generate 32.09% 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. ARMOUR Residential REIT
Performance |
| Timeline |
| MFA Financial |
| ARMOUR Residential REIT |
MFA Financial and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MFA Financial and ARMOUR Residential
The main advantage of trading using opposite MFA Financial and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MFA Financial 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.| MFA Financial vs. ACRES Commercial Realty | MFA Financial vs. Chimera Investment | MFA Financial vs. Cherry Hill Mortgage | MFA Financial vs. Cherry Hill Mortgage |
| ARMOUR Residential vs. ACRES Commercial Realty | ARMOUR Residential vs. Chimera Investment | ARMOUR Residential vs. Cherry Hill Mortgage | ARMOUR Residential vs. Cherry Hill 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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