Correlation Between Ellington Residential and Acres Commercial

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

Diversification Opportunities for Ellington Residential and Acres Commercial

-0.66

Correlation Coefficient

Ellington Residential  Acres Commercial

Excellent diversification

The 3 months correlation between Ellington and Acres is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Acres Commercial Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acres Commercial Realty 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 Acres Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acres Commercial Realty has no effect on the direction of Ellington Residential i.e., Ellington Residential and Acres Commercial go up and down completely randomly.

Pair Corralation between Ellington Residential and Acres Commercial

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the Acres Commercial. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.71 times less risky than Acres Commercial. The stock trades about -0.08 of its potential returns per unit of risk. The Acres Commercial Realty is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,585  in Acres Commercial Realty on December 29, 2024 and sell it today you would earn a total of  524.00  from holding Acres Commercial Realty or generate 33.06% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  Acres Commercial Realty

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 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.

Acres Commercial Realty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Acres Commercial Realty are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Acres Commercial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ellington Residential and Acres Commercial

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

The idea behind Ellington Residential Mortgage and Acres Commercial Realty 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.