Correlation Between Cherry Hill and Invesco Mortgage

Can any of the company-specific risk be diversified away by investing in both Cherry Hill and Invesco Mortgage 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 Cherry Hill and Invesco Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cherry Hill Mortgage and Invesco Mortgage Capital, you can compare the effects of market volatilities on Cherry Hill and Invesco Mortgage 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 Cherry Hill with a short position of Invesco Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cherry Hill and Invesco Mortgage.

Diversification Opportunities for Cherry Hill and Invesco Mortgage

0.03

Correlation Coefficient

Cherry Hill  Invesco Mortgage

Significant diversification

The 3 months correlation between Cherry and Invesco is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage Capital and Cherry Hill 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 Cherry Hill Mortgage are associated (or correlated) with Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of Cherry Hill i.e., Cherry Hill and Invesco Mortgage go up and down completely randomly.

Pair Corralation between Cherry Hill and Invesco Mortgage

Assuming the 90 days trading horizon Cherry Hill is expected to generate 1.5 times less return on investment than Invesco Mortgage. But when comparing it to its historical volatility, Cherry Hill Mortgage is 1.19 times less risky than Invesco Mortgage. It trades about 0.05 of its potential returns per unit of risk. Invesco Mortgage Capital is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,639  in Invesco Mortgage Capital on September 12, 2024 and sell it today you would earn a total of  737.00  from holding Invesco Mortgage Capital or generate 44.97% return on investment over 90 days.

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

Cherry Hill Mortgage  vs.  Invesco Mortgage Capital

Cherry Hill Mortgage

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cherry Hill Mortgage are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cherry Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Mortgage Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cherry Hill and Invesco Mortgage

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

The idea behind Cherry Hill Mortgage and Invesco Mortgage Capital 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.