Correlation Between Arbor Realty and Invesco Mortgage

Can any of the company-specific risk be diversified away by investing in both Arbor Realty and Invesco Mortgage 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 Invesco Mortgage 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 Invesco Mortgage Capital, you can compare the effects of market volatilities on Arbor Realty and Invesco Mortgage 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 Invesco Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbor Realty and Invesco Mortgage.

Diversification Opportunities for Arbor Realty and Invesco Mortgage

0.33

Correlation Coefficient

Arbor Realty  Invesco Mortgage

Weak diversification

The 3 months correlation between Arbor and Invesco is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage 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 Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of Arbor Realty i.e., Arbor Realty and Invesco Mortgage go up and down completely randomly.

Pair Corralation between Arbor Realty and Invesco Mortgage

Assuming the 90 days trading horizon Arbor Realty Trust is expected to under-perform the Invesco Mortgage. In addition to that, Arbor Realty is 1.48 times more volatile than Invesco Mortgage Capital. It trades about -0.11 of its total potential returns per unit of risk. Invesco Mortgage Capital is currently generating about 0.09 per unit of volatility. If you would invest  2,380  in Invesco Mortgage Capital on December 30, 2024 and sell it today you would earn a total of  73.00  from holding Invesco Mortgage Capital or generate 3.07% return on investment over 90 days.

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

Arbor Realty Trust  vs.  Invesco Mortgage 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. Despite nearly stable basic indicators, Arbor Realty is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Mortgage Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Mortgage Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco Mortgage is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arbor Realty and Invesco Mortgage

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

The idea behind Arbor Realty Trust and Invesco Mortgage 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..