Correlation Between NexPoint Real and Invesco Mortgage

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

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

Diversification Opportunities for NexPoint Real and Invesco Mortgage

0.5

Correlation Coefficient

NexPoint Real  Invesco Mortgage

Very weak diversification

The 3 months correlation between NexPoint and Invesco is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NexPoint Real Estate and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage Capital and NexPoint Real 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 NexPoint Real Estate are associated (or correlated) with Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of NexPoint Real i.e., NexPoint Real and Invesco Mortgage go up and down completely randomly.

Pair Corralation between NexPoint Real and Invesco Mortgage

Assuming the 90 days trading horizon NexPoint Real Estate is expected to generate 1.57 times more return on investment than Invesco Mortgage. However, NexPoint Real is 1.57 times more volatile than Invesco Mortgage Capital. It trades about 0.15 of its potential returns per unit of risk. Invesco Mortgage Capital is currently generating about 0.08 per unit of risk. If you would invest  2,177  in NexPoint Real Estate on September 3, 2024 and sell it today you would earn a total of  193.00  from holding NexPoint Real Estate or generate 8.87% return on investment over 90 days.

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

NexPoint Real Estate  vs.  Invesco Mortgage Capital

NexPoint Real Estate

Risk-Adjusted Performance

11 of 100

Good

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

Invesco Mortgage Capital

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Mortgage Capital are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco Mortgage is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NexPoint Real and Invesco Mortgage

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

The idea behind NexPoint Real Estate and Invesco Mortgage Capital 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.