Correlation Between ARMOUR Residential and Ares Commercial

Can any of the company-specific risk be diversified away by investing in both ARMOUR Residential and Ares Commercial 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 Ares Commercial 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 Ares Commercial Real, you can compare the effects of market volatilities on ARMOUR Residential and Ares Commercial 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 Ares Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARMOUR Residential and Ares Commercial.

Diversification Opportunities for ARMOUR Residential and Ares Commercial

0.31

Correlation Coefficient

ARMOUR Residential  Ares Commercial

Weak diversification

The 3 months correlation between ARMOUR and Ares is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ares Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Commercial Real 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 Ares Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Commercial Real has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Ares Commercial go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Ares Commercial

Considering the 90-day investment horizon ARMOUR Residential REIT is expected to under-perform the Ares Commercial. But the stock apears to be less risky and, when comparing its historical volatility, ARMOUR Residential REIT is 1.98 times less risky than Ares Commercial. The stock trades about -0.04 of its potential returns per unit of risk. The Ares Commercial Real is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  682.00  in Ares Commercial Real on September 2, 2024 and sell it today you would earn a total of  40.00  from holding Ares Commercial Real or generate 5.87% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Ares Commercial Real

ARMOUR Residential REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARMOUR Residential REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, ARMOUR Residential is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Ares Commercial Real

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Commercial Real are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Ares Commercial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ARMOUR Residential and Ares Commercial

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

The idea behind ARMOUR Residential REIT and Ares Commercial Real 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.