Correlation Between Chimera Investment and ARMOUR Residential

Can any of the company-specific risk be diversified away by investing in both Chimera Investment and ARMOUR 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 Chimera Investment and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chimera Investment and ARMOUR Residential REIT, you can compare the effects of market volatilities on Chimera Investment and ARMOUR 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 Chimera Investment with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chimera Investment and ARMOUR Residential.

Diversification Opportunities for Chimera Investment and ARMOUR Residential

0.8

Correlation Coefficient

Chimera Investment  ARMOUR Residential

Very poor diversification

The 3 months correlation between Chimera and ARMOUR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Chimera Investment and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and Chimera Investment 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 Chimera Investment are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Chimera Investment i.e., Chimera Investment and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Chimera Investment and ARMOUR Residential

Assuming the 90 days trading horizon Chimera Investment is expected to generate 1.09 times more return on investment than ARMOUR Residential. However, Chimera Investment is 1.09 times more volatile than ARMOUR Residential REIT. It trades about -0.01 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.11 per unit of risk. If you would invest  2,300  in Chimera Investment on October 9, 2024 and sell it today you would lose (9.00) from holding Chimera Investment or give up 0.39% of portfolio value over 90 days.

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

Chimera Investment  vs.  ARMOUR Residential REIT

Chimera Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. In spite of rather sound basic indicators, ARMOUR Residential is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Chimera Investment and ARMOUR Residential

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

The idea behind Chimera Investment and ARMOUR Residential REIT 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 Transaction History module to view history of all your transactions and understand their impact on performance.