Correlation Between Ready Capital and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both Ready Capital 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 Ready Capital and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ready Capital and ARMOUR Residential REIT, you can compare the effects of market volatilities on Ready Capital 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 Ready Capital with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ready Capital and ARMOUR Residential.
Diversification Opportunities for Ready Capital and ARMOUR Residential
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ready and ARMOUR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital 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 Ready Capital 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 Ready Capital 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 Ready Capital i.e., Ready Capital and ARMOUR Residential go up and down completely randomly.
Pair Corralation between Ready Capital and ARMOUR Residential
Assuming the 90 days horizon Ready Capital is expected to generate 1.74 times less return on investment than ARMOUR Residential. But when comparing it to its historical volatility, Ready Capital is 1.11 times less risky than ARMOUR Residential. It trades about 0.04 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,717 in ARMOUR Residential REIT on August 27, 2024 and sell it today you would earn a total of 538.00 from holding ARMOUR Residential REIT or generate 31.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ready Capital vs. ARMOUR Residential REIT
Performance |
| Timeline |
| Ready Capital |
| ARMOUR Residential REIT |
Ready Capital and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ready Capital and ARMOUR Residential
The main advantage of trading using opposite Ready Capital and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ready Capital 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.The idea behind Ready Capital and ARMOUR Residential REIT pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| ARMOUR Residential vs. Annaly Capital Management | ARMOUR Residential vs. AGNC Investment Corp | ARMOUR Residential vs. Invesco Mortgage Capital | ARMOUR Residential 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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