Correlation Between Ellington Residential and Apollo Commercial

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

Diversification Opportunities for Ellington Residential and Apollo Commercial

0.15

Correlation Coefficient

Ellington Residential  Apollo Commercial

Average diversification

The 3 months correlation between Ellington and Apollo is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Apollo Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apollo Commercial Real 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 Apollo Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apollo Commercial Real has no effect on the direction of Ellington Residential i.e., Ellington Residential and Apollo Commercial go up and down completely randomly.

Pair Corralation between Ellington Residential and Apollo Commercial

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the Apollo Commercial. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.74 times less risky than Apollo Commercial. The stock trades about -0.01 of its potential returns per unit of risk. The Apollo Commercial Real is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  899.00  in Apollo Commercial Real on November 28, 2024 and sell it today you would earn a total of  108.00  from holding Apollo Commercial Real or generate 12.01% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  Apollo Commercial Real

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.

Apollo Commercial Real

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Apollo Commercial Real are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Apollo Commercial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ellington Residential and Apollo Commercial

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

The idea behind Ellington Residential Mortgage and Apollo Commercial Real 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.