Correlation Between Cherry Hill and Two Harbors

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

Diversification Opportunities for Cherry Hill and Two Harbors

0.06

Correlation Coefficient

Cherry Hill  Two Harbors

Significant diversification

The 3 months correlation between Cherry and Two is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and Two Harbors Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investment 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investment has no effect on the direction of Cherry Hill i.e., Cherry Hill and Two Harbors go up and down completely randomly.

Pair Corralation between Cherry Hill and Two Harbors

Assuming the 90 days trading horizon Cherry Hill Mortgage is expected to under-perform the Two Harbors. In addition to that, Cherry Hill is 2.66 times more volatile than Two Harbors Investment. It trades about -0.04 of its total potential returns per unit of risk. Two Harbors Investment is currently generating about 0.17 per unit of volatility. If you would invest  2,385  in Two Harbors Investment on September 5, 2024 and sell it today you would earn a total of  105.00  from holding Two Harbors Investment or generate 4.4% 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.  Two Harbors Investment

Cherry Hill Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cherry Hill Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cherry Hill is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Two Harbors Investment

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Two Harbors is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cherry Hill and Two Harbors

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

The idea behind Cherry Hill Mortgage and Two Harbors Investment 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.