Correlation Between ARES COMMREAL and ELLINGTON RESIDMTG

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

By analyzing existing cross correlation between ARES MREAL ESTDL 01 and ELLINGTON RESIDMTG SBI, you can compare the effects of market volatilities on ARES COMMREAL 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 ARES COMMREAL with a short position of ELLINGTON RESIDMTG. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARES COMMREAL and ELLINGTON RESIDMTG.

Diversification Opportunities for ARES COMMREAL and ELLINGTON RESIDMTG

0.64

Correlation Coefficient

ARES COMMREAL  ELLINGTON RESIDMTG

Poor diversification

The 3 months correlation between ARES and ELLINGTON is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding ARES MREAL ESTDL 01 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 ARES COMMREAL 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 ARES MREAL ESTDL 01 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 ARES COMMREAL i.e., ARES COMMREAL and ELLINGTON RESIDMTG go up and down completely randomly.

Pair Corralation between ARES COMMREAL and ELLINGTON RESIDMTG

Assuming the 90 days horizon ARES MREAL ESTDL 01 is expected to under-perform the ELLINGTON RESIDMTG. In addition to that, ARES COMMREAL is 1.91 times more volatile than ELLINGTON RESIDMTG SBI. It trades about -0.14 of its total potential returns per unit of risk. ELLINGTON RESIDMTG SBI is currently generating about -0.15 per unit of volatility. If you would invest  603.00  in ELLINGTON RESIDMTG SBI on December 21, 2024 and sell it today you would lose (73.00) from holding ELLINGTON RESIDMTG SBI or give up 12.11% of portfolio value over 90 days.

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

ARES MREAL ESTDL 01  vs.  ELLINGTON RESIDMTG SBI

ARES MREAL ESTDL

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARES MREAL ESTDL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ELLINGTON RESIDMTG SBI

Risk-Adjusted Performance

Very Weak

Over the last 90 days ELLINGTON RESIDMTG SBI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ARES COMMREAL and ELLINGTON RESIDMTG

The main advantage of trading using opposite ARES COMMREAL and ELLINGTON RESIDMTG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARES COMMREAL 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 ARES MREAL ESTDL 01 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.