Correlation Between Ellington Residential and TPG RE

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

Diversification Opportunities for Ellington Residential and TPG RE

0.05

Correlation Coefficient

Ellington Residential  TPG RE

Significant diversification

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

Pair Corralation between Ellington Residential and TPG RE

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the TPG RE. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.16 times less risky than TPG RE. The stock trades about -0.11 of its potential returns per unit of risk. The TPG RE Finance is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  834.00  in TPG RE Finance on December 28, 2024 and sell it today you would lose (32.00) from holding TPG RE Finance or give up 3.84% of portfolio value over 90 days.

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

Ellington Residential Mortgage  vs.  TPG RE Finance

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.

TPG RE Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPG RE Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, TPG RE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ellington Residential and TPG RE

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

The idea behind Ellington Residential Mortgage and TPG RE Finance 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.