Correlation Between New York and Ellington Financial

Can any of the company-specific risk be diversified away by investing in both New York and Ellington 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 New York and Ellington Financial 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 Ellington Financial, you can compare the effects of market volatilities on New York and Ellington 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 New York with a short position of Ellington Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of New York and Ellington Financial.

Diversification Opportunities for New York and Ellington Financial

0.78

Correlation Coefficient

New York  Ellington Financial

Poor diversification

The 3 months correlation between New and Ellington is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding New York Mortgage and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial 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 Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of New York i.e., New York and Ellington Financial go up and down completely randomly.

Pair Corralation between New York and Ellington Financial

Assuming the 90 days horizon New York Mortgage is expected to generate 1.01 times more return on investment than Ellington Financial. However, New York is 1.01 times more volatile than Ellington Financial. It trades about 0.09 of its potential returns per unit of risk. Ellington Financial is currently generating about 0.06 per unit of risk. If you would invest  1,649  in New York Mortgage on September 26, 2024 and sell it today you would earn a total of  862.00  from holding New York Mortgage or generate 52.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.37%
Values	Daily Returns

New York Mortgage  vs.  Ellington Financial

New York Mortgage

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New York Mortgage are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, New York is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Ellington Financial

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Ellington Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ellington 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 New York and Ellington Financial

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

The idea behind New York Mortgage and Ellington 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.

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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.