Correlation Between Ellington Financial and Annaly Capital

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

By analyzing existing cross correlation between Ellington Financial and Annaly Capital Management, you can compare the effects of market volatilities on Ellington Financial and Annaly Capital 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 Annaly Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Financial and Annaly Capital.

Diversification Opportunities for Ellington Financial and Annaly Capital

0.54

Correlation Coefficient

Ellington Financial  Annaly Capital

Very weak diversification

The 3 months correlation between Ellington and Annaly is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial and Annaly Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Management 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 Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Management has no effect on the direction of Ellington Financial i.e., Ellington Financial and Annaly Capital go up and down completely randomly.

Pair Corralation between Ellington Financial and Annaly Capital

Considering the 90-day investment horizon Ellington Financial is expected to under-perform the Annaly Capital. But the stock apears to be less risky and, when comparing its historical volatility, Ellington Financial is 1.19 times less risky than Annaly Capital. The stock trades about -0.05 of its potential returns per unit of risk. The Annaly Capital Management is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,947  in Annaly Capital Management on September 3, 2024 and sell it today you would earn a total of  46.00  from holding Annaly Capital Management or generate 2.36% return on investment over 90 days.

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

Ellington Financial  vs.  Annaly Capital Management

Ellington Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ellington Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ellington Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Annaly Capital Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Annaly Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ellington Financial and Annaly Capital

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

The idea behind Ellington Financial and Annaly Capital Management 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 Transaction History module to view history of all your transactions and understand their impact on performance.