Correlation Between Redwood Trust and Ellington Financial
Can any of the company-specific risk be diversified away by investing in both Redwood Trust and Ellington Financial 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 Redwood Trust and Ellington Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Redwood Trust and Ellington Financial, you can compare the effects of market volatilities on Redwood Trust and Ellington Financial 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 Redwood Trust with a short position of Ellington Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Trust and Ellington Financial.
Diversification Opportunities for Redwood Trust and Ellington Financial
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Redwood and Ellington is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Trust and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial and Redwood Trust 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 Redwood Trust are associated (or correlated) with Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of Redwood Trust i.e., Redwood Trust and Ellington Financial go up and down completely randomly.
Pair Corralation between Redwood Trust and Ellington Financial
Considering the 90-day investment horizon Redwood Trust is expected to under-perform the Ellington Financial. In addition to that, Redwood Trust is 1.47 times more volatile than Ellington Financial. It trades about -0.12 of its total potential returns per unit of risk. Ellington Financial is currently generating about -0.03 per unit of volatility. If you would invest 1,270 in Ellington Financial on August 26, 2024 and sell it today you would lose (18.00) from holding Ellington Financial or give up 1.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Redwood Trust vs. Ellington Financial
Performance |
| Timeline |
| Redwood Trust |
| Ellington Financial |
Redwood Trust and Ellington Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Redwood Trust and Ellington Financial
The main advantage of trading using opposite Redwood Trust and Ellington Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Trust position performs unexpectedly, Ellington Financial 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 Ellington Financial will offset losses from the drop in Ellington Financial's long position.| Redwood Trust vs. Blackstone Mortgage Trust | Redwood Trust vs. Omega Healthcare Investors | Redwood Trust vs. Medical Properties Trust |
| Ellington Financial vs. Ellington Residential Mortgage | Ellington Financial vs. Orchid Island Capital | Ellington Financial vs. ARMOUR Residential REIT | Ellington Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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