Correlation Between Granite Point and ARMOUR Residential

Can any of the company-specific risk be diversified away by investing in both Granite Point and ARMOUR Residential 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 Granite Point and ARMOUR Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Granite Point Mortgage and ARMOUR Residential REIT, you can compare the effects of market volatilities on Granite Point and ARMOUR Residential 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 Granite Point with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Granite Point and ARMOUR Residential.

Diversification Opportunities for Granite Point and ARMOUR Residential

-0.14

Correlation Coefficient

Granite Point  ARMOUR Residential

Good diversification

The 3 months correlation between Granite and ARMOUR is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Granite Point Mortgage and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and Granite Point 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 Granite Point Mortgage are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Granite Point i.e., Granite Point and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Granite Point and ARMOUR Residential

Assuming the 90 days trading horizon Granite Point Mortgage is expected to under-perform the ARMOUR Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, Granite Point Mortgage is 1.28 times less risky than ARMOUR Residential. The preferred stock trades about -0.01 of its potential returns per unit of risk. The ARMOUR Residential REIT is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,072  in ARMOUR Residential REIT on December 28, 2024 and sell it today you would earn a total of  118.00  from holding ARMOUR Residential REIT or generate 5.69% return on investment over 90 days.

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

Granite Point Mortgage  vs.  ARMOUR Residential REIT

Granite Point Mortgage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Granite Point Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Granite Point is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ARMOUR Residential is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Granite Point and ARMOUR Residential

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

The idea behind Granite Point Mortgage and ARMOUR Residential REIT 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..