Correlation Between Ellington Residential and BlackRock MIT

Can any of the company-specific risk be diversified away by investing in both Ellington Residential and BlackRock MIT 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 Ellington Residential and BlackRock MIT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ellington Residential Mortgage and BlackRock MIT II, you can compare the effects of market volatilities on Ellington Residential and BlackRock MIT 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 Ellington Residential with a short position of BlackRock MIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Residential and BlackRock MIT.

Diversification Opportunities for Ellington Residential and BlackRock MIT

0.67

Correlation Coefficient

Ellington Residential  BlackRock MIT

Poor diversification

The 3 months correlation between Ellington and BlackRock is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and BlackRock MIT II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock MIT II and Ellington 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 Ellington Residential Mortgage are associated (or correlated) with BlackRock MIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock MIT II has no effect on the direction of Ellington Residential i.e., Ellington Residential and BlackRock MIT go up and down completely randomly.

Pair Corralation between Ellington Residential and BlackRock MIT

Given the investment horizon of 90 days Ellington Residential Mortgage is expected to generate 1.94 times more return on investment than BlackRock MIT. However, Ellington Residential is 1.94 times more volatile than BlackRock MIT II. It trades about 0.02 of its potential returns per unit of risk. BlackRock MIT II is currently generating about 0.03 per unit of risk. If you would invest  665.00  in Ellington Residential Mortgage on September 3, 2024 and sell it today you would earn a total of  8.00  from holding Ellington Residential Mortgage or generate 1.2% return on investment over 90 days.

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

Ellington Residential Mortgage  vs.  BlackRock MIT II

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

BlackRock MIT II

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock MIT II are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, BlackRock MIT is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ellington Residential and BlackRock MIT

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

The idea behind Ellington Residential Mortgage and BlackRock MIT II 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.