Correlation Between Orchid Island and Invesco Mortgage

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

Diversification Opportunities for Orchid Island and Invesco Mortgage

0.53

Correlation Coefficient

Orchid Island  Invesco Mortgage

Very weak diversification

The 3 months correlation between Orchid and Invesco is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital 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 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 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 Orchid Island i.e., Orchid Island and Invesco Mortgage go up and down completely randomly.

Pair Corralation between Orchid Island and Invesco Mortgage

Considering the 90-day investment horizon Orchid Island Capital is expected to generate 0.83 times more return on investment than Invesco Mortgage. However, Orchid Island Capital is 1.21 times less risky than Invesco Mortgage. It trades about 0.08 of its potential returns per unit of risk. Invesco Mortgage Capital is currently generating about 0.06 per unit of risk. If you would invest  778.00  in Orchid Island Capital on August 30, 2024 and sell it today you would earn a total of  14.00  from holding Orchid Island Capital or generate 1.8% return on investment over 90 days.

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

Orchid Island Capital  vs.  Invesco Mortgage Capital

Orchid Island Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orchid Island Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Orchid Island is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco Mortgage Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Mortgage Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco Mortgage is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Orchid Island and Invesco Mortgage

The main advantage of trading using opposite Orchid Island and Invesco Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orchid Island 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 Orchid Island Capital 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.