Correlation Between Ellington Financial and TPG RE

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

Diversification Opportunities for Ellington Financial and TPG RE

-0.5

Correlation Coefficient

Ellington Financial  TPG RE

Very good diversification

The 3 months correlation between Ellington and TPG is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial 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 Financial 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 Financial 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 Financial i.e., Ellington Financial and TPG RE go up and down completely randomly.

Pair Corralation between Ellington Financial and TPG RE

Assuming the 90 days trading horizon Ellington Financial is expected to generate 1.08 times less return on investment than TPG RE. But when comparing it to its historical volatility, Ellington Financial is 1.63 times less risky than TPG RE. It trades about 0.05 of its potential returns per unit of risk. TPG RE Finance is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,430  in TPG RE Finance on October 15, 2024 and sell it today you would earn a total of  360.00  from holding TPG RE Finance or generate 25.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.14%
Values	Daily Returns

Ellington Financial  vs.  TPG RE Finance

Ellington Financial

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Ellington Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ellington Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

TPG RE Finance

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental indicators, TPG RE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ellington Financial and TPG RE

The main advantage of trading using opposite Ellington Financial and TPG RE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ellington Financial 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 Financial 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.