Correlation Between ARMOUR Residential and Chimera Investment

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

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

Diversification Opportunities for ARMOUR Residential and Chimera Investment

0.8

Correlation Coefficient

ARMOUR Residential  Chimera Investment

Very poor diversification

The 3 months correlation between ARMOUR and Chimera is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Chimera Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chimera Investment and ARMOUR Residential 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 ARMOUR Residential REIT are associated (or correlated) with Chimera Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chimera Investment has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Chimera Investment go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Chimera Investment

Assuming the 90 days trading horizon ARMOUR Residential REIT is expected to under-perform the Chimera Investment. But the preferred stock apears to be less risky and, when comparing its historical volatility, ARMOUR Residential REIT is 1.09 times less risky than Chimera Investment. The preferred stock trades about -0.11 of its potential returns per unit of risk. The Chimera Investment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,300  in Chimera Investment on October 9, 2024 and sell it today you would lose (9.00) from holding Chimera Investment or give up 0.39% of portfolio value over 90 days.

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

ARMOUR Residential REIT  vs.  Chimera Investment

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. In spite of rather sound basic indicators, ARMOUR Residential is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Chimera Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chimera Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Chimera Investment is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ARMOUR Residential and Chimera Investment

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

The idea behind ARMOUR Residential REIT and Chimera Investment 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .