Correlation Between ELLINGTON RESIDMTG and ELLINGTON FINL

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

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

Diversification Opportunities for ELLINGTON RESIDMTG and ELLINGTON FINL

-0.28

Correlation Coefficient

ELLINGTON RESIDMTG  ELLINGTON FINL

Very good diversification

The 3 months correlation between ELLINGTON and ELLINGTON is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding ELLINGTON RESIDMTG SBI and ELLINGTON FINL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELLINGTON FINL INC and ELLINGTON RESIDMTG 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 RESIDMTG SBI are associated (or correlated) with ELLINGTON FINL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELLINGTON FINL INC has no effect on the direction of ELLINGTON RESIDMTG i.e., ELLINGTON RESIDMTG and ELLINGTON FINL go up and down completely randomly.

Pair Corralation between ELLINGTON RESIDMTG and ELLINGTON FINL

Assuming the 90 days horizon ELLINGTON RESIDMTG SBI is expected to under-perform the ELLINGTON FINL. But the stock apears to be less risky and, when comparing its historical volatility, ELLINGTON RESIDMTG SBI is 1.34 times less risky than ELLINGTON FINL. The stock trades about -0.19 of its potential returns per unit of risk. The ELLINGTON FINL INC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,126  in ELLINGTON FINL INC on December 25, 2024 and sell it today you would earn a total of  114.00  from holding ELLINGTON FINL INC or generate 10.12% return on investment over 90 days.

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

ELLINGTON RESIDMTG SBI  vs.  ELLINGTON FINL INC

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 fragile 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 FINL INC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELLINGTON FINL INC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ELLINGTON FINL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ELLINGTON RESIDMTG and ELLINGTON FINL

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

The idea behind ELLINGTON RESIDMTG SBI and ELLINGTON FINL INC 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.