Correlation Between Arbor Realty and Ready Capital

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

By analyzing existing cross correlation between Arbor Realty Trust and Ready Capital, you can compare the effects of market volatilities on Arbor Realty and Ready Capital 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 Arbor Realty with a short position of Ready Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbor Realty and Ready Capital.

Diversification Opportunities for Arbor Realty and Ready Capital

0.59

Correlation Coefficient

Arbor Realty  Ready Capital

Very weak diversification

The 3 months correlation between Arbor and Ready is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Ready Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital and Arbor Realty 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 Arbor Realty Trust are associated (or correlated) with Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital has no effect on the direction of Arbor Realty i.e., Arbor Realty and Ready Capital go up and down completely randomly.

Pair Corralation between Arbor Realty and Ready Capital

Assuming the 90 days trading horizon Arbor Realty Trust is expected to generate 1.11 times more return on investment than Ready Capital. However, Arbor Realty is 1.11 times more volatile than Ready Capital. It trades about -0.08 of its potential returns per unit of risk. Ready Capital is currently generating about -0.17 per unit of risk. If you would invest  1,828  in Arbor Realty Trust on December 29, 2024 and sell it today you would lose (77.00) from holding Arbor Realty Trust or give up 4.21% of portfolio value over 90 days.

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

Arbor Realty Trust  vs.  Ready Capital

Arbor Realty Trust

Risk-Adjusted Performance

Very Weak

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

Ready Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ready Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Arbor Realty and Ready Capital

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

The idea behind Arbor Realty Trust and Ready Capital 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.