Correlation Between Cherry Hill and Lument Finance

Can any of the company-specific risk be diversified away by investing in both Cherry Hill and Lument Finance 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 Cherry Hill and Lument Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cherry Hill Mortgage and Lument Finance Trust, you can compare the effects of market volatilities on Cherry Hill and Lument Finance 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 Cherry Hill with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cherry Hill and Lument Finance.

Diversification Opportunities for Cherry Hill and Lument Finance

0.39

Correlation Coefficient

Cherry Hill  Lument Finance

Weak diversification

The 3 months correlation between Cherry and Lument is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and Cherry Hill 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 Cherry Hill Mortgage are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of Cherry Hill i.e., Cherry Hill and Lument Finance go up and down completely randomly.

Pair Corralation between Cherry Hill and Lument Finance

Assuming the 90 days trading horizon Cherry Hill Mortgage is expected to under-perform the Lument Finance. But the preferred stock apears to be less risky and, when comparing its historical volatility, Cherry Hill Mortgage is 1.2 times less risky than Lument Finance. The preferred stock trades about -0.04 of its potential returns per unit of risk. The Lument Finance Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,083  in Lument Finance Trust on September 2, 2024 and sell it today you would earn a total of  215.00  from holding Lument Finance Trust or generate 10.32% return on investment over 90 days.

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

Cherry Hill Mortgage  vs.  Lument Finance Trust

Cherry Hill Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cherry Hill Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cherry Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lument Finance Trust

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Lument Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cherry Hill and Lument Finance

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

The idea behind Cherry Hill Mortgage and Lument Finance Trust 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.