Correlation Between Ellington Financial and Chimera Investment

Can any of the company-specific risk be diversified away by investing in both Ellington Financial and Chimera Investment 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 Chimera Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ellington Financial and Chimera Investment, you can compare the effects of market volatilities on Ellington Financial and Chimera Investment 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 Chimera Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Financial and Chimera Investment.

Diversification Opportunities for Ellington Financial and Chimera Investment

-0.33

Correlation Coefficient

Ellington Financial  Chimera Investment

Very good diversification

The 3 months correlation between Ellington and Chimera is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial and Chimera Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chimera Investment 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 Chimera Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chimera Investment has no effect on the direction of Ellington Financial i.e., Ellington Financial and Chimera Investment go up and down completely randomly.

Pair Corralation between Ellington Financial and Chimera Investment

Considering the 90-day investment horizon Ellington Financial is expected to generate 0.9 times more return on investment than Chimera Investment. However, Ellington Financial is 1.11 times less risky than Chimera Investment. It trades about 0.14 of its potential returns per unit of risk. Chimera Investment is currently generating about -0.03 per unit of risk. If you would invest  1,171  in Ellington Financial on December 29, 2024 and sell it today you would earn a total of  157.00  from holding Ellington Financial or generate 13.41% return on investment over 90 days.

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

Ellington Financial  vs.  Chimera Investment

Ellington Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, Ellington Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chimera Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chimera Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Chimera Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ellington Financial and Chimera Investment

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

The idea behind Ellington Financial and Chimera Investment 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.