Correlation Between AG Mortgage and MFA Financial

Can any of the company-specific risk be diversified away by investing in both AG Mortgage and MFA Financial 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 MFA Financial 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 MFA Financial, you can compare the effects of market volatilities on AG Mortgage and MFA Financial 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 MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of AG Mortgage and MFA Financial.

Diversification Opportunities for AG Mortgage and MFA Financial

0.82

Correlation Coefficient

AG Mortgage  MFA Financial

Very poor diversification

The 3 months correlation between MITT-PA and MFA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding AG Mortgage Investment and MFA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFA Financial 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 MFA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFA Financial has no effect on the direction of AG Mortgage i.e., AG Mortgage and MFA Financial go up and down completely randomly.

Pair Corralation between AG Mortgage and MFA Financial

Assuming the 90 days trading horizon AG Mortgage Investment is expected to generate 1.74 times more return on investment than MFA Financial. However, AG Mortgage is 1.74 times more volatile than MFA Financial. It trades about 0.15 of its potential returns per unit of risk. MFA Financial is currently generating about 0.05 per unit of risk. If you would invest  2,107  in AG Mortgage Investment on December 29, 2024 and sell it today you would earn a total of  173.00  from holding AG Mortgage Investment or generate 8.21% return on investment over 90 days.

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

AG Mortgage Investment  vs.  MFA Financial

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 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, AG Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MFA Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFA Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, MFA Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AG Mortgage and MFA Financial

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

The idea behind AG Mortgage Investment and MFA Financial 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.