Correlation Between ARMOUR Residential and New York

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

Diversification Opportunities for ARMOUR Residential and New York

-0.65

Correlation Coefficient

ARMOUR Residential  New York

Excellent diversification

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

Pair Corralation between ARMOUR Residential and New York

Assuming the 90 days trading horizon ARMOUR Residential REIT is expected to generate 1.05 times more return on investment than New York. However, ARMOUR Residential is 1.05 times more volatile than New York Mortgage. It trades about 0.12 of its potential returns per unit of risk. New York Mortgage is currently generating about -0.05 per unit of risk. If you would invest  2,072  in ARMOUR Residential REIT on December 29, 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	Weak
Accuracy	100.0%
Values	Daily Returns

ARMOUR Residential REIT  vs.  New York Mortgage

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.

New York Mortgage

Risk-Adjusted Performance

Very Weak

Over the last 90 days New York Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, New York is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ARMOUR Residential and New York

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

The idea behind ARMOUR Residential REIT and New York 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.