Correlation Between Arbor Realty and Ellington Financial

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

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

Diversification Opportunities for Arbor Realty and Ellington Financial

0.76

Correlation Coefficient

Arbor Realty  Ellington Financial

Poor diversification

The 3 months correlation between Arbor and Ellington is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial and Arbor Realty 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 Arbor Realty Trust are associated (or correlated) with Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of Arbor Realty i.e., Arbor Realty and Ellington Financial go up and down completely randomly.

Pair Corralation between Arbor Realty and Ellington Financial

Assuming the 90 days trading horizon Arbor Realty Trust is expected to generate 4.94 times more return on investment than Ellington Financial. However, Arbor Realty is 4.94 times more volatile than Ellington Financial. It trades about 0.3 of its potential returns per unit of risk. Ellington Financial is currently generating about 0.1 per unit of risk. If you would invest  1,882  in Arbor Realty Trust on September 25, 2024 and sell it today you would earn a total of  411.00  from holding Arbor Realty Trust or generate 21.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.63%
Values	Daily Returns

Arbor Realty Trust  vs.  Ellington Financial

Arbor Realty Trust

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Realty Trust are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Arbor Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Ellington Financial

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with Arbor Realty and Ellington Financial

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

The idea behind Arbor Realty Trust and Ellington Financial 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.