Correlation Between TPG RE and Two Harbors

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

Diversification Opportunities for TPG RE and Two Harbors

-0.33

Correlation Coefficient

TPG RE  Two Harbors

Very good diversification

The 3 months correlation between TPG and Two is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding TPG RE Finance and Two Harbors Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investment 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 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 Investment has no effect on the direction of TPG RE i.e., TPG RE and Two Harbors go up and down completely randomly.

Pair Corralation between TPG RE and Two Harbors

Assuming the 90 days trading horizon TPG RE Finance is expected to under-perform the Two Harbors. But the preferred stock apears to be less risky and, when comparing its historical volatility, TPG RE Finance is 1.08 times less risky than Two Harbors. The preferred stock trades about -0.1 of its potential returns per unit of risk. The Two Harbors Investment is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,292  in Two Harbors Investment on November 29, 2024 and sell it today you would earn a total of  147.00  from holding Two Harbors Investment or generate 6.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

TPG RE Finance  vs.  Two Harbors Investment

TPG RE Finance

Risk-Adjusted Performance

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.

Two Harbors Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Two Harbors may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with TPG RE and Two Harbors

The main advantage of trading using opposite TPG RE and Two Harbors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPG RE 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 TPG RE Finance and Two Harbors Investment 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.