Correlation Between New York and ARMOUR Residential

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

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

Diversification Opportunities for New York and ARMOUR Residential

-0.18

Correlation Coefficient

New York  ARMOUR Residential

Good diversification

The 3 months correlation between New and ARMOUR is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding New York Mortgage 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 New York 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 New York Mortgage 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 New York i.e., New York and ARMOUR Residential go up and down completely randomly.

Pair Corralation between New York and ARMOUR Residential

Assuming the 90 days horizon New York Mortgage is expected to under-perform the ARMOUR Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, New York Mortgage is 2.17 times less risky than ARMOUR Residential. The preferred stock trades about -0.01 of its potential returns per unit of risk. The ARMOUR Residential REIT is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,072  in ARMOUR Residential REIT on December 29, 2024 and sell it today you would earn a total of  114.00  from holding ARMOUR Residential REIT or generate 5.5% return on investment over 90 days.

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

New York Mortgage  vs.  ARMOUR Residential REIT

New York Mortgage

Risk-Adjusted Performance

Very Weak

Over the last 90 days New York Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, New York is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. 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 New York and ARMOUR Residential

The main advantage of trading using opposite New York and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New York 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 New York Mortgage 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.