Correlation Between Cherry Hill and MFA Financial

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

Diversification Opportunities for Cherry Hill and MFA Financial

0.86

Correlation Coefficient

Cherry Hill  MFA Financial

Very poor diversification

The 3 months correlation between Cherry and MFA is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial 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 MFA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFA Financial has no effect on the direction of Cherry Hill i.e., Cherry Hill and MFA Financial go up and down completely randomly.

Pair Corralation between Cherry Hill and MFA Financial

Given the investment horizon of 90 days Cherry Hill Mortgage is expected to generate 1.65 times more return on investment than MFA Financial. However, Cherry Hill is 1.65 times more volatile than MFA Financial. It trades about 0.18 of its potential returns per unit of risk. MFA Financial is currently generating about -0.28 per unit of risk. If you would invest  251.00  in Cherry Hill Mortgage on October 15, 2024 and sell it today you would earn a total of  24.00  from holding Cherry Hill Mortgage or generate 9.56% return on investment over 90 days.

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

Cherry Hill Mortgage  vs.  MFA Financial

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 unsteady performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

MFA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MFA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Cherry Hill and MFA Financial

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

The idea behind Cherry Hill Mortgage and MFA 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.