Correlation Between ARMOUR Residential and Two Harbors

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

Diversification Opportunities for ARMOUR Residential and Two Harbors

0.91

Correlation Coefficient

ARMOUR Residential  Two Harbors

Almost no diversification

The 3 months correlation between ARMOUR and Two is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of ARMOUR Residential i.e., ARMOUR Residential and Two Harbors go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Two Harbors

Considering the 90-day investment horizon ARMOUR Residential REIT is expected to generate 0.91 times more return on investment than Two Harbors. However, ARMOUR Residential REIT is 1.1 times less risky than Two Harbors. It trades about 0.01 of its potential returns per unit of risk. Two Harbors Investments is currently generating about 0.0 per unit of risk. If you would invest  1,877  in ARMOUR Residential REIT on August 31, 2024 and sell it today you would earn a total of  1.00  from holding ARMOUR Residential REIT or generate 0.05% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Two Harbors Investments

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

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 uncertain 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.

Pair Trading with ARMOUR Residential and Two Harbors

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

The idea behind ARMOUR Residential REIT and Two Harbors Investments 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 CEOs Directory module to screen CEOs from public companies around the world.