Correlation Between Angel Oak and Orchid Island

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

Diversification Opportunities for Angel Oak and Orchid Island

0.65

Correlation Coefficient

Angel Oak  Orchid Island

Poor diversification

The 3 months correlation between Angel and Orchid is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Angel Oak Mortgage and Orchid Island Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orchid Island Capital 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 Orchid Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orchid Island Capital has no effect on the direction of Angel Oak i.e., Angel Oak and Orchid Island go up and down completely randomly.

Pair Corralation between Angel Oak and Orchid Island

Given the investment horizon of 90 days Angel Oak is expected to generate 1.0 times less return on investment than Orchid Island. In addition to that, Angel Oak is 1.26 times more volatile than Orchid Island Capital. It trades about 0.08 of its total potential returns per unit of risk. Orchid Island Capital is currently generating about 0.1 per unit of volatility. If you would invest  754.00  in Orchid Island Capital on December 27, 2024 and sell it today you would earn a total of  60.00  from holding Orchid Island Capital or generate 7.96% return on investment over 90 days.

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

Angel Oak Mortgage  vs.  Orchid Island Capital

Angel Oak Mortgage

Risk-Adjusted Performance

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 April 2025.

Orchid Island Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orchid Island may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Angel Oak and Orchid Island

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

The idea behind Angel Oak Mortgage and Orchid Island 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.