Correlation Between Ellington Residential and SEI Investments

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

Diversification Opportunities for Ellington Residential and SEI Investments

0.76

Correlation Coefficient

Ellington Residential  SEI Investments

Poor diversification

The 3 months correlation between Ellington and SEI is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and SEI Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Investments 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 SEI Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Investments has no effect on the direction of Ellington Residential i.e., Ellington Residential and SEI Investments go up and down completely randomly.

Pair Corralation between Ellington Residential and SEI Investments

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the SEI Investments. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.12 times less risky than SEI Investments. The stock trades about -0.11 of its potential returns per unit of risk. The SEI Investments is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  8,264  in SEI Investments on December 28, 2024 and sell it today you would lose (553.00) from holding SEI Investments or give up 6.69% of portfolio value over 90 days.

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

Ellington Residential Mortgage  vs.  SEI Investments

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.

SEI Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days SEI Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Ellington Residential and SEI Investments

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

The idea behind Ellington Residential Mortgage and SEI Investments 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .