Correlation Between MFA Financial and Ellington Financial

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

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

Diversification Opportunities for MFA Financial and Ellington Financial

0.73

Correlation Coefficient

MFA Financial  Ellington Financial

Poor diversification

The 3 months correlation between MFA and Ellington is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MFA Financial and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial and MFA 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 MFA Financial are associated (or correlated) with Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of MFA Financial i.e., MFA Financial and Ellington Financial go up and down completely randomly.

Pair Corralation between MFA Financial and Ellington Financial

Assuming the 90 days trading horizon MFA Financial is expected to generate 2.02 times more return on investment than Ellington Financial. However, MFA Financial is 2.02 times more volatile than Ellington Financial. It trades about 0.08 of its potential returns per unit of risk. Ellington Financial is currently generating about 0.0 per unit of risk. If you would invest  2,406  in MFA Financial on September 14, 2024 and sell it today you would earn a total of  27.00  from holding MFA Financial or generate 1.12% return on investment over 90 days.

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

MFA Financial  vs.  Ellington Financial

MFA Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MFA Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, MFA Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Ellington Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Ellington Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MFA Financial and Ellington Financial

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

The idea behind MFA Financial and Ellington Financial 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.