Correlation Between Rithm Capital and Ellington Financial

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

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

Diversification Opportunities for Rithm Capital and Ellington Financial

0.83

Correlation Coefficient

Rithm Capital  Ellington Financial

Very poor diversification

The 3 months correlation between Rithm and Ellington is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Rithm Capital Corp and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial and Rithm 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 Rithm Capital Corp 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 Rithm Capital i.e., Rithm Capital and Ellington Financial go up and down completely randomly.

Pair Corralation between Rithm Capital and Ellington Financial

Assuming the 90 days trading horizon Rithm Capital Corp is expected to generate 0.87 times more return on investment than Ellington Financial. However, Rithm Capital Corp is 1.15 times less risky than Ellington Financial. It trades about 0.1 of its potential returns per unit of risk. Ellington Financial is currently generating about 0.06 per unit of risk. If you would invest  1,712  in Rithm Capital Corp on September 26, 2024 and sell it today you would earn a total of  830.00  from holding Rithm Capital Corp or generate 48.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.18%
Values	Daily Returns

Rithm Capital Corp  vs.  Ellington Financial

Rithm Capital Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rithm Capital Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Rithm Capital is not utilizing all of its potentials. The current stock price disturbance, 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 Rithm Capital and Ellington Financial

The main advantage of trading using opposite Rithm Capital and Ellington Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rithm Capital 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 Rithm Capital Corp 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.