Correlation Between Modiv and ARMOUR Residential

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

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

Diversification Opportunities for Modiv and ARMOUR Residential

0.88

Correlation Coefficient

Modiv  ARMOUR Residential

Very poor diversification

The 3 months correlation between Modiv and ARMOUR is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Modiv Inc 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 Modiv 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 Modiv Inc 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 Modiv i.e., Modiv and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Modiv and ARMOUR Residential

Assuming the 90 days trading horizon Modiv is expected to generate 1.69 times less return on investment than ARMOUR Residential. But when comparing it to its historical volatility, Modiv Inc is 1.41 times less risky than ARMOUR Residential. It trades about 0.07 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,181  in ARMOUR Residential REIT on September 2, 2024 and sell it today you would earn a total of  79.00  from holding ARMOUR Residential REIT or generate 3.62% return on investment over 90 days.

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

Modiv Inc  vs.  ARMOUR Residential REIT

Modiv Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Modiv Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Modiv is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 6 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Modiv and ARMOUR Residential

The main advantage of trading using opposite Modiv and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Modiv 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 Modiv Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.