Correlation Between Cherry Hill and Granite Point

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

Diversification Opportunities for Cherry Hill and Granite Point

-0.16

Correlation Coefficient

Cherry Hill  Granite Point

Good diversification

The 3 months correlation between Cherry and Granite is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage and Granite Point Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Point Mortgage 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 Granite Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Point Mortgage has no effect on the direction of Cherry Hill i.e., Cherry Hill and Granite Point go up and down completely randomly.

Pair Corralation between Cherry Hill and Granite Point

Assuming the 90 days trading horizon Cherry Hill Mortgage is expected to under-perform the Granite Point. But the preferred stock apears to be less risky and, when comparing its historical volatility, Cherry Hill Mortgage is 6.75 times less risky than Granite Point. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Granite Point Mortgage is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  268.00  in Granite Point Mortgage on September 5, 2024 and sell it today you would earn a total of  67.00  from holding Granite Point Mortgage or generate 25.0% return on investment over 90 days.

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

Cherry Hill Mortgage  vs.  Granite Point Mortgage

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 fundamental drivers, Cherry Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Granite Point Mortgage

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Point Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Granite Point unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cherry Hill and Granite Point

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

The idea behind Cherry Hill Mortgage and Granite Point 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.