Correlation Between AFC Gamma and Ellington Residential

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

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

Diversification Opportunities for AFC Gamma and Ellington Residential

0.91

Correlation Coefficient

AFC Gamma  Ellington Residential

Almost no diversification

The 3 months correlation between AFC and Ellington is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding AFC Gamma and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and AFC Gamma 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 AFC Gamma 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 AFC Gamma i.e., AFC Gamma and Ellington Residential go up and down completely randomly.

Pair Corralation between AFC Gamma and Ellington Residential

Given the investment horizon of 90 days AFC Gamma is expected to under-perform the Ellington Residential. In addition to that, AFC Gamma is 2.89 times more volatile than Ellington Residential Mortgage. It trades about -0.13 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 29, 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

AFC Gamma  vs.  Ellington Residential Mortgage

AFC Gamma

Risk-Adjusted Performance

Very Weak

Over the last 90 days AFC Gamma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 AFC Gamma and Ellington Residential

The main advantage of trading using opposite AFC Gamma and Ellington Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AFC Gamma 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 AFC Gamma 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.