Correlation Between Ellington Financial and Granite Point

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

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

Diversification Opportunities for Ellington Financial and Granite Point

0.75

Correlation Coefficient

Ellington Financial  Granite Point

Poor diversification

The 3 months correlation between Ellington and Granite is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial 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 Ellington Financial 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 Financial 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 Ellington Financial i.e., Ellington Financial and Granite Point go up and down completely randomly.

Pair Corralation between Ellington Financial and Granite Point

Assuming the 90 days trading horizon Ellington Financial is expected to generate 4.8 times less return on investment than Granite Point. But when comparing it to its historical volatility, Ellington Financial is 2.69 times less risky than Granite Point. It trades about 0.08 of its potential returns per unit of risk. Granite Point Mortgage is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,605  in Granite Point Mortgage on September 13, 2024 and sell it today you would earn a total of  179.00  from holding Granite Point Mortgage or generate 11.15% return on investment over 90 days.

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

Ellington Financial  vs.  Granite Point Mortgage

Ellington Financial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Ellington Financial 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

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Point Mortgage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Granite Point may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ellington Financial and Granite Point

The main advantage of trading using opposite Ellington Financial and Granite Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ellington Financial 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 Ellington Financial 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.