Correlation Between Ladder Capital and Ellington Residential

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

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

Diversification Opportunities for Ladder Capital and Ellington Residential

0.09

Correlation Coefficient

Ladder Capital  Ellington Residential

Significant diversification

The 3 months correlation between Ladder and Ellington is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ladder Capital Corp and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and Ladder Capital 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 Ladder Capital Corp are associated (or correlated) with Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of Ladder Capital i.e., Ladder Capital and Ellington Residential go up and down completely randomly.

Pair Corralation between Ladder Capital and Ellington Residential

Given the investment horizon of 90 days Ladder Capital is expected to generate 2.85 times less return on investment than Ellington Residential. But when comparing it to its historical volatility, Ladder Capital Corp is 1.06 times less risky than Ellington Residential. It trades about 0.02 of its potential returns per unit of risk. Ellington Residential Mortgage is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  667.00  in Ellington Residential Mortgage on September 12, 2024 and sell it today you would earn a total of  27.00  from holding Ellington Residential Mortgage or generate 4.05% return on investment over 90 days.

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

Ladder Capital Corp  vs.  Ellington Residential Mortgage

Ladder Capital Corp

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ladder Capital Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Ladder Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Ellington Residential

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Residential Mortgage are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Ellington Residential is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ladder Capital and Ellington Residential

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

The idea behind Ladder Capital Corp and Ellington Residential Mortgage 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.