Correlation Between ARMOUR Residential and Modiv

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

Diversification Opportunities for ARMOUR Residential and Modiv

-0.09

Correlation Coefficient

ARMOUR Residential  Modiv

Good diversification

The 3 months correlation between ARMOUR and Modiv is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Modiv Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modiv Inc 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 Modiv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modiv Inc has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Modiv go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Modiv

Assuming the 90 days trading horizon ARMOUR Residential REIT is expected to generate 1.17 times more return on investment than Modiv. However, ARMOUR Residential is 1.17 times more volatile than Modiv Inc. It trades about 0.12 of its potential returns per unit of risk. Modiv Inc is currently generating about 0.05 per unit of risk. If you would invest  2,072  in ARMOUR Residential REIT on December 30, 2024 and sell it today you would earn a total of  114.00  from holding ARMOUR Residential REIT or generate 5.5% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Modiv Inc

ARMOUR Residential REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. 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.

Modiv Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Modiv Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Modiv is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ARMOUR Residential and Modiv

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

The idea behind ARMOUR Residential REIT and Modiv Inc 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 Stocks Directory module to find actively traded stocks across global markets.