Correlation Between MFA Financial and HG Holdings

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

By analyzing existing cross correlation between MFA Financial and HG Holdings, you can compare the effects of market volatilities on MFA Financial and HG Holdings 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 MFA Financial with a short position of HG Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFA Financial and HG Holdings.

Diversification Opportunities for MFA Financial and HG Holdings

-0.55

Correlation Coefficient

MFA Financial  HG Holdings

Excellent diversification

The 3 months correlation between MFA and STLY is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MFA Financial and HG Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HG Holdings and MFA 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 MFA Financial are associated (or correlated) with HG Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HG Holdings has no effect on the direction of MFA Financial i.e., MFA Financial and HG Holdings go up and down completely randomly.

Pair Corralation between MFA Financial and HG Holdings

Assuming the 90 days trading horizon MFA Financial is expected to generate 0.31 times more return on investment than HG Holdings. However, MFA Financial is 3.19 times less risky than HG Holdings. It trades about 0.07 of its potential returns per unit of risk. HG Holdings is currently generating about 0.0 per unit of risk. If you would invest  1,481  in MFA Financial on September 17, 2024 and sell it today you would earn a total of  696.00  from holding MFA Financial or generate 47.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	28.83%
Values	Daily Returns

MFA Financial  vs.  HG Holdings

MFA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

HG Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HG Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, HG Holdings is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MFA Financial and HG Holdings

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

The idea behind MFA Financial and HG Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.