Correlation Between Granite Point and ARMOUR Residential

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

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

Diversification Opportunities for Granite Point and ARMOUR Residential

0.07

Correlation Coefficient

Granite Point  ARMOUR Residential

Significant diversification

The 3 months correlation between Granite and ARMOUR is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Granite Point Mortgage 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 Granite Point 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 Granite Point Mortgage 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 Granite Point i.e., Granite Point and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Granite Point and ARMOUR Residential

Assuming the 90 days trading horizon Granite Point Mortgage is expected to generate 1.71 times more return on investment than ARMOUR Residential. However, Granite Point is 1.71 times more volatile than ARMOUR Residential REIT. It trades about 0.15 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.05 per unit of risk. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Granite Point Mortgage  vs.  ARMOUR Residential REIT

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.

ARMOUR Residential REIT

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ARMOUR Residential is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Granite Point and ARMOUR Residential

The main advantage of trading using opposite Granite Point and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Granite Point 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 Granite Point Mortgage 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.