Correlation Between Orchid Island and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both Orchid Island and Redwood Trust 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 Redwood Trust 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 Redwood Trust, you can compare the effects of market volatilities on Orchid Island and Redwood Trust 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 Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orchid Island and Redwood Trust.
Diversification Opportunities for Orchid Island and Redwood Trust
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Orchid and Redwood is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust 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 Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Orchid Island i.e., Orchid Island and Redwood Trust go up and down completely randomly.
Pair Corralation between Orchid Island and Redwood Trust
Considering the 90-day investment horizon Orchid Island Capital is expected to generate 0.89 times more return on investment than Redwood Trust. However, Orchid Island Capital is 1.12 times less risky than Redwood Trust. It trades about 0.02 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.01 per unit of risk. If you would invest 800.00 in Orchid Island Capital on November 19, 2024 and sell it today you would earn a total of 77.00 from holding Orchid Island Capital or generate 9.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Orchid Island Capital vs. Redwood Trust
Performance |
| Timeline |
| Orchid Island Capital |
| Redwood Trust |
Orchid Island and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Orchid Island and Redwood Trust
The main advantage of trading using opposite Orchid Island and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orchid Island position performs unexpectedly, Redwood Trust 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 Redwood Trust will offset losses from the drop in Redwood Trust'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 |
| Redwood Trust vs. Two Harbors Investments | Redwood Trust vs. AG Mortgage Investment | Redwood Trust vs. Invesco Mortgage Capital | Redwood Trust vs. MFA Financial |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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