Correlation Between AG Mortgage and Lument Finance

Can any of the company-specific risk be diversified away by investing in both AG Mortgage and Lument Finance 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 AG Mortgage and Lument Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AG Mortgage Investment and Lument Finance Trust, you can compare the effects of market volatilities on AG Mortgage and Lument Finance 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 AG Mortgage with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of AG Mortgage and Lument Finance.

Diversification Opportunities for AG Mortgage and Lument Finance

-0.42

Correlation Coefficient

AG Mortgage  Lument Finance

Very good diversification

The 3 months correlation between MITT-PA and Lument is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding AG Mortgage Investment and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and AG Mortgage 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 AG Mortgage Investment are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of AG Mortgage i.e., AG Mortgage and Lument Finance go up and down completely randomly.

Pair Corralation between AG Mortgage and Lument Finance

Assuming the 90 days trading horizon AG Mortgage Investment is expected to generate 1.14 times more return on investment than Lument Finance. However, AG Mortgage is 1.14 times more volatile than Lument Finance Trust. It trades about 0.15 of its potential returns per unit of risk. Lument Finance Trust is currently generating about -0.02 per unit of risk. If you would invest  2,186  in AG Mortgage Investment on November 29, 2024 and sell it today you would earn a total of  152.00  from holding AG Mortgage Investment or generate 6.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.53%
Values	Daily Returns

AG Mortgage Investment  vs.  Lument Finance Trust

AG Mortgage Investment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AG Mortgage may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Lument Finance Trust

Risk-Adjusted Performance

Very Weak

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

Pair Trading with AG Mortgage and Lument Finance

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

The idea behind AG Mortgage Investment and Lument Finance Trust 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.