Correlation Between Annaly Capital and Invesco Mortgage

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

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

Diversification Opportunities for Annaly Capital and Invesco Mortgage

-0.31

Correlation Coefficient

Annaly Capital  Invesco Mortgage

Very good diversification

The 3 months correlation between Annaly and Invesco is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Annaly Capital Management and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage Capital and Annaly 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 Annaly Capital Management are associated (or correlated) with Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of Annaly Capital i.e., Annaly Capital and Invesco Mortgage go up and down completely randomly.

Pair Corralation between Annaly Capital and Invesco Mortgage

Assuming the 90 days trading horizon Annaly Capital is expected to generate 1.51 times less return on investment than Invesco Mortgage. But when comparing it to its historical volatility, Annaly Capital Management is 2.41 times less risky than Invesco Mortgage. It trades about 0.09 of its potential returns per unit of risk. Invesco Mortgage Capital is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,443  in Invesco Mortgage Capital on August 31, 2024 and sell it today you would earn a total of  66.00  from holding Invesco Mortgage Capital or generate 2.7% return on investment over 90 days.

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

Annaly Capital Management  vs.  Invesco Mortgage Capital

Annaly Capital Management

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Annaly Capital is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Invesco Mortgage Capital

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Mortgage Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco Mortgage is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Annaly Capital and Invesco Mortgage

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

The idea behind Annaly Capital Management and Invesco Mortgage Capital 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.