Correlation Between Orchid Island and Ares Commercial
Can any of the company-specific risk be diversified away by investing in both Orchid Island and Ares Commercial 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 Orchid Island and Ares Commercial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Orchid Island Capital and Ares Commercial Real, you can compare the effects of market volatilities on Orchid Island and Ares Commercial 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 Orchid Island with a short position of Ares Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orchid Island and Ares Commercial.
Diversification Opportunities for Orchid Island and Ares Commercial
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Orchid and Ares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Ares Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Commercial Real and Orchid Island 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 Orchid Island Capital are associated (or correlated) with Ares Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Commercial Real has no effect on the direction of Orchid Island i.e., Orchid Island and Ares Commercial go up and down completely randomly.
Pair Corralation between Orchid Island and Ares Commercial
Considering the 90-day investment horizon Orchid Island is expected to generate 3.73 times less return on investment than Ares Commercial. But when comparing it to its historical volatility, Orchid Island Capital is 2.35 times less risky than Ares Commercial. It trades about 0.1 of its potential returns per unit of risk. Ares Commercial Real is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 655.00 in Ares Commercial Real on August 24, 2024 and sell it today you would earn a total of 61.00 from holding Ares Commercial Real or generate 9.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Orchid Island Capital vs. Ares Commercial Real
Performance |
| Timeline |
| Orchid Island Capital |
| Ares Commercial Real |
Orchid Island and Ares Commercial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Orchid Island and Ares Commercial
The main advantage of trading using opposite Orchid Island and Ares Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orchid Island position performs unexpectedly, Ares Commercial 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 Ares Commercial will offset losses from the drop in Ares Commercial's long position.| Orchid Island vs. AGNC Investment Corp | Orchid Island vs. Two Harbors Investments | Orchid Island vs. Invesco Mortgage Capital | Orchid Island vs. Chimera Investment |
| Ares Commercial vs. Two Harbors Investments | Ares Commercial vs. Apollo Commercial Real | Ares Commercial vs. Ellington Financial | Ares Commercial vs. Dynex 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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