Correlation Between Ellington Residential and Two Harbors

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

Diversification Opportunities for Ellington Residential and Two Harbors

-0.37

Correlation Coefficient

Ellington Residential  Two Harbors

Very good diversification

The 3 months correlation between Ellington and Two is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Ellington Residential i.e., Ellington Residential and Two Harbors go up and down completely randomly.

Pair Corralation between Ellington Residential and Two Harbors

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to under-perform the Two Harbors. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Residential Mortgage is 1.28 times less risky than Two Harbors. The stock trades about -0.11 of its potential returns per unit of risk. The Two Harbors Investments is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,117  in Two Harbors Investments on December 28, 2024 and sell it today you would earn a total of  204.00  from holding Two Harbors Investments or generate 18.26% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  Two Harbors 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.

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ellington Residential and Two Harbors

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

The idea behind Ellington Residential Mortgage and Two Harbors 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.