Correlation Between Chimera Investment and Arbor Realty

Can any of the company-specific risk be diversified away by investing in both Chimera Investment and Arbor Realty 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 Chimera Investment and Arbor Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chimera Investment and Arbor Realty Trust, you can compare the effects of market volatilities on Chimera Investment and Arbor Realty 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 Chimera Investment with a short position of Arbor Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chimera Investment and Arbor Realty.

Diversification Opportunities for Chimera Investment and Arbor Realty

0.91

Correlation Coefficient

Chimera Investment  Arbor Realty

Almost no diversification

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

Pair Corralation between Chimera Investment and Arbor Realty

Assuming the 90 days trading horizon Chimera Investment is expected to generate 3.7 times less return on investment than Arbor Realty. But when comparing it to its historical volatility, Chimera Investment is 2.87 times less risky than Arbor Realty. It trades about 0.22 of its potential returns per unit of risk. Arbor Realty Trust is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,804  in Arbor Realty Trust on August 31, 2024 and sell it today you would earn a total of  321.00  from holding Arbor Realty Trust or generate 17.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Chimera Investment  vs.  Arbor Realty Trust

Chimera Investment

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chimera Investment are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Chimera Investment is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Arbor Realty Trust

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Realty Trust are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Arbor Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chimera Investment and Arbor Realty

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

The idea behind Chimera Investment and Arbor Realty 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.