Correlation Between Ladder Capital and Lument Finance

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

By analyzing existing cross correlation between Ladder Capital Corp and Lument Finance Trust, you can compare the effects of market volatilities on Ladder Capital and Lument Finance 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 Ladder Capital with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ladder Capital and Lument Finance.

Diversification Opportunities for Ladder Capital and Lument Finance

-0.4

Correlation Coefficient

Ladder Capital  Lument Finance

Very good diversification

The 3 months correlation between Ladder and Lument is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ladder Capital Corp and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and Ladder Capital 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 Ladder Capital Corp are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of Ladder Capital i.e., Ladder Capital and Lument Finance go up and down completely randomly.

Pair Corralation between Ladder Capital and Lument Finance

Given the investment horizon of 90 days Ladder Capital Corp is expected to under-perform the Lument Finance. But the stock apears to be less risky and, when comparing its historical volatility, Ladder Capital Corp is 1.13 times less risky than Lument Finance. The stock trades about -0.02 of its potential returns per unit of risk. The Lument Finance Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,083  in Lument Finance Trust on August 31, 2024 and sell it today you would earn a total of  182.00  from holding Lument Finance Trust or generate 8.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Ladder Capital Corp  vs.  Lument Finance Trust

Ladder Capital Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lument Finance Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Lument Finance may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ladder Capital and Lument Finance

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

The idea behind Ladder Capital Corp and Lument Finance Trust 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.