Correlation Between Two Harbors and ARMOUR Residential
Can any of the company-specific risk be diversified away by investing in both Two Harbors 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 Two Harbors and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Two Harbors Investment and ARMOUR Residential REIT, you can compare the effects of market volatilities on Two Harbors 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 Two Harbors with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and ARMOUR Residential.
Diversification Opportunities for Two Harbors and ARMOUR Residential
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Two and ARMOUR is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investment 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 Two Harbors 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 Two Harbors Investment 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 Two Harbors i.e., Two Harbors and ARMOUR Residential go up and down completely randomly.
Pair Corralation between Two Harbors and ARMOUR Residential
Assuming the 90 days trading horizon Two Harbors Investment is expected to under-perform the ARMOUR Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, Two Harbors Investment is 1.43 times less risky than ARMOUR Residential. The preferred stock trades about -0.29 of its potential returns per unit of risk. The ARMOUR Residential REIT is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest 2,316 in ARMOUR Residential REIT on August 31, 2024 and sell it today you would lose (76.00) from holding ARMOUR Residential REIT or give up 3.28% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Two Harbors Investment vs. ARMOUR Residential REIT
Performance |
| Timeline |
| Two Harbors Investment |
| ARMOUR Residential REIT |
Two Harbors and ARMOUR Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Two Harbors and ARMOUR Residential
The main advantage of trading using opposite Two Harbors and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Two Harbors 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.| Two Harbors vs. Two Harbors Investment | Two Harbors vs. Invesco Mortgage Capital | Two Harbors vs. Chimera Investment | Two Harbors vs. MFA Financial |
| 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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