Correlation Between Two Harbors and Ready Capital

Can any of the company-specific risk be diversified away by investing in both Two Harbors and Ready Capital 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 Ready Capital 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 Ready Capital Corp, you can compare the effects of market volatilities on Two Harbors and Ready Capital 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 Ready Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and Ready Capital.

Diversification Opportunities for Two Harbors and Ready Capital

0.69

Correlation Coefficient

Two Harbors  Ready Capital

Poor diversification

The 3 months correlation between Two and Ready is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and Ready Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital Corp 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 Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital Corp has no effect on the direction of Two Harbors i.e., Two Harbors and Ready Capital go up and down completely randomly.

Pair Corralation between Two Harbors and Ready Capital

Considering the 90-day investment horizon Two Harbors Investments is expected to under-perform the Ready Capital. But the stock apears to be less risky and, when comparing its historical volatility, Two Harbors Investments is 1.27 times less risky than Ready Capital. The stock trades about -0.18 of its potential returns per unit of risk. The Ready Capital Corp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  803.00  in Ready Capital Corp on August 30, 2024 and sell it today you would lose (61.00) from holding Ready Capital Corp or give up 7.6% of portfolio value over 90 days.

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

Two Harbors Investments  vs.  Ready Capital Corp

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Ready Capital Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ready Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Two Harbors and Ready Capital

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

The idea behind Two Harbors Investments and Ready Capital Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.