Correlation Between TPG RE and Lument Finance

Can any of the company-specific risk be diversified away by investing in both TPG RE and Lument Finance 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 TPG RE and Lument Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TPG RE Finance and Lument Finance Trust, you can compare the effects of market volatilities on TPG RE and Lument Finance 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 TPG RE with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of TPG RE and Lument Finance.

Diversification Opportunities for TPG RE and Lument Finance

-0.41

Correlation Coefficient

TPG RE  Lument Finance

Very good diversification

The 3 months correlation between TPG and Lument is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding TPG RE Finance and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and TPG RE 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 TPG RE Finance are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of TPG RE i.e., TPG RE and Lument Finance go up and down completely randomly.

Pair Corralation between TPG RE and Lument Finance

Assuming the 90 days trading horizon TPG RE Finance is expected to under-perform the Lument Finance. In addition to that, TPG RE is 1.24 times more volatile than Lument Finance Trust. It trades about -0.11 of its total potential returns per unit of risk. Lument Finance Trust is currently generating about 0.02 per unit of volatility. If you would invest  2,244  in Lument Finance Trust on October 14, 2024 and sell it today you would earn a total of  6.00  from holding Lument Finance Trust or generate 0.27% return on investment over 90 days.

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

TPG RE Finance  vs.  Lument Finance Trust

TPG RE Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lument Finance Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lument Finance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TPG RE and Lument Finance

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

The idea behind TPG RE Finance and Lument Finance Trust 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.