Correlation Between Arbor Realty and Ellington Residential

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

Diversification Opportunities for Arbor Realty and Ellington Residential

0.42

Correlation Coefficient

Arbor Realty  Ellington Residential

Very weak diversification

The 3 months correlation between Arbor and Ellington is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential 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 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 Arbor Realty i.e., Arbor Realty and Ellington Residential go up and down completely randomly.

Pair Corralation between Arbor Realty and Ellington Residential

Considering the 90-day investment horizon Arbor Realty Trust is expected to under-perform the Ellington Residential. In addition to that, Arbor Realty is 2.01 times more volatile than Ellington Residential Mortgage. It trades about -0.06 of its total potential returns per unit of risk. Ellington Residential Mortgage is currently generating about -0.08 per unit of volatility. If you would invest  633.00  in Ellington Residential Mortgage on December 28, 2024 and sell it today you would lose (36.00) from holding Ellington Residential Mortgage or give up 5.69% 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.  Ellington Residential Mortgage

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. Even with latest inconsistent performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Ellington Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ellington Residential Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Arbor Realty and Ellington Residential

The main advantage of trading using opposite Arbor Realty and Ellington Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbor Realty 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 Arbor Realty Trust 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.