Correlation Between Ellington Residential and Arbor Realty

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

By analyzing existing cross correlation between Ellington Residential Mortgage and Arbor Realty Trust, you can compare the effects of market volatilities on Ellington Residential and Arbor Realty 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 Ellington Residential with a short position of Arbor Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Residential and Arbor Realty.

Diversification Opportunities for Ellington Residential and Arbor Realty

-0.05

Correlation Coefficient

Ellington Residential  Arbor Realty

Good diversification

The 3 months correlation between Ellington and Arbor is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Arbor Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Realty Trust and Ellington Residential 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 Ellington Residential Mortgage are associated (or correlated) with Arbor Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Realty Trust has no effect on the direction of Ellington Residential i.e., Ellington Residential and Arbor Realty go up and down completely randomly.

Pair Corralation between Ellington Residential and Arbor Realty

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to generate 0.57 times more return on investment than Arbor Realty. However, Ellington Residential Mortgage is 1.76 times less risky than Arbor Realty. It trades about 0.08 of its potential returns per unit of risk. Arbor Realty Trust is currently generating about 0.02 per unit of risk. If you would invest  545.00  in Ellington Residential Mortgage on September 13, 2024 and sell it today you would earn a total of  144.00  from holding Ellington Residential Mortgage or generate 26.42% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  Arbor Realty Trust

Ellington Residential

Risk-Adjusted Performance

2 of 100

Insignificant

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

Arbor Realty Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Arbor Realty is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ellington Residential and Arbor Realty

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

The idea behind Ellington Residential Mortgage and Arbor Realty Trust 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.