Correlation Between Arlington Asset and Ellington Residential

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

By analyzing existing cross correlation between Arlington Asset Investment and Ellington Residential Mortgage, you can compare the effects of market volatilities on Arlington Asset and Ellington 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 Arlington Asset with a short position of Ellington Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arlington Asset and Ellington Residential.

Diversification Opportunities for Arlington Asset and Ellington Residential

-0.21

Correlation Coefficient

Arlington Asset  Ellington Residential

Very good diversification

The 3 months correlation between Arlington and Ellington is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Arlington Asset Investment and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and Arlington Asset 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 Arlington Asset Investment are associated (or correlated) with Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of Arlington Asset i.e., Arlington Asset and Ellington Residential go up and down completely randomly.

Pair Corralation between Arlington Asset and Ellington Residential

If you would invest  654.00  in Ellington Residential Mortgage on September 12, 2024 and sell it today you would earn a total of  40.00  from holding Ellington Residential Mortgage or generate 6.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Arlington Asset Investment  vs.  Ellington Residential Mortgage

Arlington Asset Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arlington Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Arlington Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ellington Residential

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Residential Mortgage are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Ellington Residential is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Arlington Asset and Ellington Residential

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

The idea behind Arlington Asset Investment and Ellington Residential Mortgage 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.