Correlation Between ARMOUR Residential and Franklin BSP

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

Diversification Opportunities for ARMOUR Residential and Franklin BSP

0.29

Correlation Coefficient

ARMOUR Residential  Franklin BSP

Modest diversification

The 3 months correlation between ARMOUR and Franklin is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Franklin BSP Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin BSP Realty 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 Franklin BSP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin BSP Realty has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Franklin BSP go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Franklin BSP

Considering the 90-day investment horizon ARMOUR Residential REIT is expected to under-perform the Franklin BSP. But the stock apears to be less risky and, when comparing its historical volatility, ARMOUR Residential REIT is 1.13 times less risky than Franklin BSP. The stock trades about -0.02 of its potential returns per unit of risk. The Franklin BSP Realty is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,250  in Franklin BSP Realty on October 22, 2024 and sell it today you would earn a total of  15.00  from holding Franklin BSP Realty or generate 1.2% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Franklin BSP Realty

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.

Franklin BSP Realty

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin BSP Realty are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Franklin BSP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ARMOUR Residential and Franklin BSP

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

The idea behind ARMOUR Residential REIT and Franklin BSP Realty 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.