Correlation Between Two Harbors and Cherry Hill

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

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

Diversification Opportunities for Two Harbors and Cherry Hill

0.94

Correlation Coefficient

Two Harbors  Cherry Hill

Almost no diversification

The 3 months correlation between Two and Cherry is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and Cherry Hill Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cherry Hill Mortgage and Two Harbors 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 Two Harbors Investments are associated (or correlated) with Cherry Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cherry Hill Mortgage has no effect on the direction of Two Harbors i.e., Two Harbors and Cherry Hill go up and down completely randomly.

Pair Corralation between Two Harbors and Cherry Hill

Considering the 90-day investment horizon Two Harbors is expected to generate 1.71 times less return on investment than Cherry Hill. But when comparing it to its historical volatility, Two Harbors Investments is 1.52 times less risky than Cherry Hill. It trades about 0.2 of its potential returns per unit of risk. Cherry Hill Mortgage is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  266.00  in Cherry Hill Mortgage on December 27, 2024 and sell it today you would earn a total of  91.50  from holding Cherry Hill Mortgage or generate 34.4% return on investment over 90 days.

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

Two Harbors Investments  vs.  Cherry Hill Mortgage

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Cherry Hill Mortgage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cherry Hill Mortgage are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady primary indicators, Cherry Hill demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Two Harbors and Cherry Hill

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

The idea behind Two Harbors Investments and Cherry Hill Mortgage 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 Global Correlations module to find global opportunities by holding instruments from different markets.