Correlation Between Ares Commercial and ARMOUR Residential

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

By analyzing existing cross correlation between Ares Commercial Real and ARMOUR Residential REIT, you can compare the effects of market volatilities on Ares Commercial and ARMOUR 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 Ares Commercial with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and ARMOUR Residential.

Diversification Opportunities for Ares Commercial and ARMOUR Residential

-0.6

Correlation Coefficient

Ares Commercial  ARMOUR Residential

Excellent diversification

The 3 months correlation between Ares and ARMOUR is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and Ares Commercial 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 Ares Commercial Real are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Ares Commercial i.e., Ares Commercial and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Ares Commercial and ARMOUR Residential

Given the investment horizon of 90 days Ares Commercial Real is expected to under-perform the ARMOUR Residential. In addition to that, Ares Commercial is 2.45 times more volatile than ARMOUR Residential REIT. It trades about -0.12 of its total potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.02 per unit of volatility. If you would invest  1,798  in ARMOUR Residential REIT on December 27, 2024 and sell it today you would earn a total of  18.00  from holding ARMOUR Residential REIT or generate 1.0% return on investment over 90 days.

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

Ares Commercial Real  vs.  ARMOUR Residential REIT

Ares Commercial Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ares Commercial Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

ARMOUR Residential REIT

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, ARMOUR Residential is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ares Commercial and ARMOUR Residential

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

The idea behind Ares Commercial Real and ARMOUR Residential REIT 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.