Correlation Between ELLINGTON FINL and ELLINGTON RESIDMTG

Can any of the company-specific risk be diversified away by investing in both ELLINGTON FINL and ELLINGTON RESIDMTG 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 ELLINGTON FINL and ELLINGTON RESIDMTG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ELLINGTON FINL INC and ELLINGTON RESIDMTG SBI, you can compare the effects of market volatilities on ELLINGTON FINL and ELLINGTON RESIDMTG 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 ELLINGTON FINL with a short position of ELLINGTON RESIDMTG. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELLINGTON FINL and ELLINGTON RESIDMTG.

Diversification Opportunities for ELLINGTON FINL and ELLINGTON RESIDMTG

0.66

Correlation Coefficient

ELLINGTON FINL  ELLINGTON RESIDMTG

Poor diversification

The 3 months correlation between ELLINGTON and ELLINGTON is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding ELLINGTON FINL INC and ELLINGTON RESIDMTG SBI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELLINGTON RESIDMTG SBI and ELLINGTON FINL 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 ELLINGTON FINL INC are associated (or correlated) with ELLINGTON RESIDMTG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELLINGTON RESIDMTG SBI has no effect on the direction of ELLINGTON FINL i.e., ELLINGTON FINL and ELLINGTON RESIDMTG go up and down completely randomly.

Pair Corralation between ELLINGTON FINL and ELLINGTON RESIDMTG

Assuming the 90 days horizon ELLINGTON FINL is expected to generate 1.25 times less return on investment than ELLINGTON RESIDMTG. But when comparing it to its historical volatility, ELLINGTON FINL INC is 1.48 times less risky than ELLINGTON RESIDMTG. It trades about 0.18 of its potential returns per unit of risk. ELLINGTON RESIDMTG SBI is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  568.00  in ELLINGTON RESIDMTG SBI on October 7, 2024 and sell it today you would earn a total of  77.00  from holding ELLINGTON RESIDMTG SBI or generate 13.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

ELLINGTON FINL INC  vs.  ELLINGTON RESIDMTG SBI

ELLINGTON FINL INC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ELLINGTON FINL INC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ELLINGTON FINL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ELLINGTON RESIDMTG SBI

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ELLINGTON RESIDMTG SBI are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ELLINGTON RESIDMTG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELLINGTON FINL and ELLINGTON RESIDMTG

The main advantage of trading using opposite ELLINGTON FINL and ELLINGTON RESIDMTG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ELLINGTON FINL position performs unexpectedly, ELLINGTON RESIDMTG 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 RESIDMTG will offset losses from the drop in ELLINGTON RESIDMTG's long position.

The idea behind ELLINGTON FINL INC and ELLINGTON RESIDMTG SBI 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.