Correlation Between Cherry Hill and Ellington Residential

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

Diversification Opportunities for Cherry Hill and Ellington Residential

-0.38

Correlation Coefficient

Cherry Hill  Ellington Residential

Very good diversification

The 3 months correlation between Cherry and Ellington is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential 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 Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of Cherry Hill i.e., Cherry Hill and Ellington Residential go up and down completely randomly.

Pair Corralation between Cherry Hill and Ellington Residential

Given the investment horizon of 90 days Cherry Hill Mortgage is expected to generate 1.96 times more return on investment than Ellington Residential. However, Cherry Hill is 1.96 times more volatile than Ellington Residential Mortgage. It trades about 0.21 of its potential returns per unit of risk. Ellington Residential Mortgage is currently generating about -0.11 per unit of risk. If you would invest  261.00  in Cherry Hill Mortgage on December 30, 2024 and sell it today you would earn a total of  83.00  from holding Cherry Hill Mortgage or generate 31.8% return on investment over 90 days.

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

Cherry Hill Mortgage  vs.  Ellington Residential Mortgage

Cherry Hill Mortgage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cherry Hill Mortgage are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady primary indicators, Cherry Hill demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Ellington Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ellington Residential Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cherry Hill and Ellington Residential

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

The idea behind Cherry Hill Mortgage and Ellington Residential 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.