Correlation Between Ellington Residential and Capital One

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

Diversification Opportunities for Ellington Residential and Capital One

0.63

Correlation Coefficient

Ellington Residential  Capital One

Poor diversification

The 3 months correlation between Ellington and Capital is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Ellington Residential i.e., Ellington Residential and Capital One go up and down completely randomly.

Pair Corralation between Ellington Residential and Capital One

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the Capital One. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.89 times less risky than Capital One. The stock trades about -0.11 of its potential returns per unit of risk. The Capital One Financial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17,740  in Capital One Financial on December 29, 2024 and sell it today you would earn a total of  75.00  from holding Capital One Financial or generate 0.42% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  Capital One Financial

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Capital One Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ellington Residential and Capital One

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

The idea behind Ellington Residential Mortgage and Capital One 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.