Correlation Between Franklin BSP and ARMOUR Residential

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

By analyzing existing cross correlation between Franklin BSP Realty and ARMOUR Residential REIT, you can compare the effects of market volatilities on Franklin BSP and ARMOUR Residential 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 Franklin BSP with a short position of ARMOUR Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin BSP and ARMOUR Residential.

Diversification Opportunities for Franklin BSP and ARMOUR Residential

0.03

Correlation Coefficient

Franklin BSP  ARMOUR Residential

Significant diversification

The 3 months correlation between Franklin and ARMOUR is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Franklin BSP Realty and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and Franklin BSP 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 Franklin BSP Realty are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Franklin BSP i.e., Franklin BSP and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Franklin BSP and ARMOUR Residential

Given the investment horizon of 90 days Franklin BSP Realty is expected to generate 1.02 times more return on investment than ARMOUR Residential. However, Franklin BSP is 1.02 times more volatile than ARMOUR Residential REIT. It trades about 0.04 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about -0.02 per unit of risk. If you would invest  1,277  in Franklin BSP Realty on September 4, 2024 and sell it today you would earn a total of  33.00  from holding Franklin BSP Realty or generate 2.58% return on investment over 90 days.

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

Franklin BSP Realty  vs.  ARMOUR Residential REIT

Franklin BSP Realty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin BSP Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Franklin BSP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARMOUR Residential REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, ARMOUR Residential is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Franklin BSP and ARMOUR Residential

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

The idea behind Franklin BSP Realty and ARMOUR Residential REIT 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.