Correlation Between Ready Capital and Orchid Island

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

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

Diversification Opportunities for Ready Capital and Orchid Island

-0.4

Correlation Coefficient

Ready Capital  Orchid Island

Very good diversification

The 3 months correlation between Ready and Orchid is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital Corp and Orchid Island Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orchid Island Capital and Ready Capital 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 Ready Capital Corp are associated (or correlated) with Orchid Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orchid Island Capital has no effect on the direction of Ready Capital i.e., Ready Capital and Orchid Island go up and down completely randomly.

Pair Corralation between Ready Capital and Orchid Island

Allowing for the 90-day total investment horizon Ready Capital Corp is expected to under-perform the Orchid Island. In addition to that, Ready Capital is 2.96 times more volatile than Orchid Island Capital. It trades about -0.1 of its total potential returns per unit of risk. Orchid Island Capital is currently generating about 0.07 per unit of volatility. If you would invest  754.00  in Orchid Island Capital on December 27, 2024 and sell it today you would earn a total of  41.00  from holding Orchid Island Capital or generate 5.44% return on investment over 90 days.

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

Ready Capital Corp  vs.  Orchid Island Capital

Ready Capital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ready Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Orchid Island is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ready Capital and Orchid Island

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

The idea behind Ready Capital Corp and Orchid Island 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.