Correlation Between Stifel Financial and Two Harbors

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

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

Diversification Opportunities for Stifel Financial and Two Harbors

-0.88

Correlation Coefficient

Stifel Financial  Two Harbors

Pay attention - limited upside

The 3 months correlation between Stifel and Two is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Stifel Financial and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments and Stifel Financial 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 Stifel Financial are associated (or correlated) with Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Stifel Financial i.e., Stifel Financial and Two Harbors go up and down completely randomly.

Pair Corralation between Stifel Financial and Two Harbors

Allowing for the 90-day total investment horizon Stifel Financial is expected to generate 1.57 times more return on investment than Two Harbors. However, Stifel Financial is 1.57 times more volatile than Two Harbors Investments. It trades about 0.24 of its potential returns per unit of risk. Two Harbors Investments is currently generating about -0.17 per unit of risk. If you would invest  8,526  in Stifel Financial on September 3, 2024 and sell it today you would earn a total of  3,054  from holding Stifel Financial or generate 35.82% return on investment over 90 days.

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

Stifel Financial  vs.  Two Harbors Investments

Stifel Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stifel Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Stifel Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Two Harbors Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Two Harbors Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Stifel Financial and Two Harbors

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

The idea behind Stifel Financial and Two Harbors Investments 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.