Correlation Between AG Mortgage and ARMOUR Residential

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

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

Diversification Opportunities for AG Mortgage and ARMOUR Residential

0.71

Correlation Coefficient

AG Mortgage  ARMOUR Residential

Poor diversification

The 3 months correlation between MITT-PA and ARMOUR is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding AG Mortgage Investment 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 AG Mortgage 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 AG Mortgage Investment 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 AG Mortgage i.e., AG Mortgage and ARMOUR Residential go up and down completely randomly.

Pair Corralation between AG Mortgage and ARMOUR Residential

Assuming the 90 days trading horizon AG Mortgage Investment is expected to generate 0.99 times more return on investment than ARMOUR Residential. However, AG Mortgage Investment is 1.01 times less risky than ARMOUR Residential. It trades about 0.1 of its potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.03 per unit of risk. If you would invest  2,118  in AG Mortgage Investment on September 11, 2024 and sell it today you would earn a total of  86.00  from holding AG Mortgage Investment or generate 4.06% return on investment over 90 days.

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

AG Mortgage Investment  vs.  ARMOUR Residential REIT

AG Mortgage Investment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AG Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 2 (%) 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 AG Mortgage and ARMOUR Residential

The main advantage of trading using opposite AG Mortgage and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AG Mortgage 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 AG Mortgage Investment 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.