Correlation Between ARMOUR Residential and AG Mortgage

Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential and AG Mortgage 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 ARMOUR Residential and AG Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ARMOUR Residential REIT and AG Mortgage Investment, you can compare the effects of market volatilities on ARMOUR Residential and AG Mortgage 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 ARMOUR Residential with a short position of AG Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and AG Mortgage.

Diversification Opportunities for ARMOUR Residential and AG Mortgage

0.84

Correlation Coefficient

ARMOUR Residential  AG Mortgage

Very poor diversification

The 3 months correlation between ARMOUR and MITT-PB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and AG Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AG Mortgage Investment and ARMOUR Residential 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 ARMOUR Residential REIT are associated (or correlated) with AG Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AG Mortgage Investment has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and AG Mortgage go up and down completely randomly.

Pair Corralation between ARMOUR Residential and AG Mortgage

Assuming the 90 days trading horizon ARMOUR Residential is expected to generate 1.63 times less return on investment than AG Mortgage. But when comparing it to its historical volatility, ARMOUR Residential REIT is 1.45 times less risky than AG Mortgage. It trades about 0.07 of its potential returns per unit of risk. AG Mortgage Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,073  in AG Mortgage Investment on September 5, 2024 and sell it today you would earn a total of  107.00  from holding AG Mortgage Investment or generate 5.16% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  AG Mortgage Investment

ARMOUR Residential REIT

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ARMOUR Residential is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

AG Mortgage Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, AG Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ARMOUR Residential and AG Mortgage

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

The idea behind ARMOUR Residential REIT and AG Mortgage 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.

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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.