Correlation Between ARMOUR Residential and Ellington Financial

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

Diversification Opportunities for ARMOUR Residential and Ellington Financial

0.88

Correlation Coefficient

ARMOUR Residential  Ellington Financial

Very poor diversification

The 3 months correlation between ARMOUR and Ellington is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial 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 Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Ellington Financial go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Ellington Financial

Considering the 90-day investment horizon ARMOUR Residential REIT is expected to generate 1.21 times more return on investment than Ellington Financial. However, ARMOUR Residential is 1.21 times more volatile than Ellington Financial. It trades about -0.04 of its potential returns per unit of risk. Ellington Financial is currently generating about -0.07 per unit of risk. If you would invest  1,954  in ARMOUR Residential REIT on August 31, 2024 and sell it today you would lose (62.00) from holding ARMOUR Residential REIT or give up 3.17% 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.  Ellington Financial

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.

Ellington Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ellington Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ellington Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ARMOUR Residential and Ellington Financial

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

The idea behind ARMOUR Residential REIT and Ellington Financial 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 CEOs Directory module to screen CEOs from public companies around the world.