Correlation Between Angel Oak and ARMOUR Residential

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

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

Diversification Opportunities for Angel Oak and ARMOUR Residential

0.27

Correlation Coefficient

Angel Oak  ARMOUR Residential

Modest diversification

The 3 months correlation between Angel and ARMOUR is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Angel Oak Mortgage 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 Angel Oak 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 Angel Oak Mortgage 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 Angel Oak i.e., Angel Oak and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Angel Oak and ARMOUR Residential

Given the investment horizon of 90 days Angel Oak Mortgage is expected to generate 1.5 times more return on investment than ARMOUR Residential. However, Angel Oak is 1.5 times more volatile than ARMOUR Residential REIT. It trades about 0.08 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.04 per unit of risk. If you would invest  938.00  in Angel Oak Mortgage on October 21, 2024 and sell it today you would earn a total of  70.00  from holding Angel Oak Mortgage or generate 7.46% return on investment over 90 days.

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

Angel Oak Mortgage  vs.  ARMOUR Residential REIT

Angel Oak Mortgage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Angel Oak Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain primary indicators, Angel Oak may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ARMOUR Residential REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARMOUR Residential REIT has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Angel Oak and ARMOUR Residential

The main advantage of trading using opposite Angel Oak and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Angel Oak 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 Angel Oak Mortgage 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.