Correlation Between Annaly Capital and ARMOUR Residential

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

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

Diversification Opportunities for Annaly Capital and ARMOUR Residential

-0.4

Correlation Coefficient

Annaly Capital  ARMOUR Residential

Very good diversification

The 3 months correlation between Annaly and ARMOUR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Annaly Capital Management 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 Annaly 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 Annaly Capital Management 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 Annaly Capital i.e., Annaly Capital and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Annaly Capital and ARMOUR Residential

Assuming the 90 days trading horizon Annaly Capital Management is expected to generate 0.71 times more return on investment than ARMOUR Residential. However, Annaly Capital Management is 1.41 times less risky than ARMOUR Residential. It trades about 0.09 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.06 per unit of risk. If you would invest  1,908  in Annaly Capital Management on September 23, 2024 and sell it today you would earn a total of  601.00  from holding Annaly Capital Management or generate 31.5% return on investment over 90 days.

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

Annaly Capital Management  vs.  ARMOUR Residential REIT

Annaly Capital Management

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Annaly Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ARMOUR Residential REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARMOUR Residential REIT has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Annaly Capital and ARMOUR Residential

The main advantage of trading using opposite Annaly Capital and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Annaly Capital 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 Annaly Capital Management 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.