Correlation Between Orchid Island and Angel Oak

Can any of the company-specific risk be diversified away by investing in both Orchid Island and Angel Oak 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 Orchid Island and Angel Oak into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Orchid Island and Angel Oak

0.71

Correlation Coefficient

Orchid Island  Angel Oak

Poor diversification

The 3 months correlation between Orchid and Angel is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Angel Oak Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Angel Oak Mortgage and Orchid Island 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 Orchid Island Capital are associated (or correlated) with Angel Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Angel Oak Mortgage has no effect on the direction of Orchid Island i.e., Orchid Island and Angel Oak go up and down completely randomly.

Pair Corralation between Orchid Island and Angel Oak

Considering the 90-day investment horizon Orchid Island Capital is expected to generate 0.79 times more return on investment than Angel Oak. However, Orchid Island Capital is 1.27 times less risky than Angel Oak. It trades about 0.12 of its potential returns per unit of risk. Angel Oak Mortgage is currently generating about 0.08 per unit of risk. If you would invest  751.00  in Orchid Island Capital on December 25, 2024 and sell it today you would earn a total of  71.00  from holding Orchid Island Capital or generate 9.45% return on investment over 90 days.

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

Orchid Island Capital  vs.  Angel Oak Mortgage

Orchid Island Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orchid Island may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Angel Oak Mortgage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Angel Oak Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain primary indicators, Angel Oak may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Orchid Island and Angel Oak

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

The idea behind Orchid Island Capital and Angel Oak Mortgage 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.