Correlation Between ARMOUR Residential and Ellington Residential

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

Diversification Opportunities for ARMOUR Residential and Ellington Residential

0.74

Correlation Coefficient

ARMOUR Residential  Ellington Residential

Poor diversification

The 3 months correlation between ARMOUR and Ellington is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential 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 Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Ellington Residential go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Ellington Residential

Considering the 90-day investment horizon ARMOUR Residential REIT is expected to under-perform the Ellington Residential. But the stock apears to be less risky and, when comparing its historical volatility, ARMOUR Residential REIT is 1.06 times less risky than Ellington Residential. The stock trades about -0.07 of its potential returns per unit of risk. The Ellington Residential Mortgage is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  676.00  in Ellington Residential Mortgage on August 30, 2024 and sell it today you would earn a total of  9.00  from holding Ellington Residential Mortgage or generate 1.33% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Ellington Residential Mortgage

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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Ellington Residential

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Residential Mortgage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Ellington Residential is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ARMOUR Residential and Ellington Residential

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

The idea behind ARMOUR Residential REIT and Ellington Residential 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.