Correlation Between Annaly Capital and Orchid Island

Can any of the company-specific risk be diversified away by investing in both Annaly Capital and Orchid Island 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 Orchid Island 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 Orchid Island Capital, you can compare the effects of market volatilities on Annaly Capital and Orchid Island 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 Orchid Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Annaly Capital and Orchid Island.

Diversification Opportunities for Annaly Capital and Orchid Island

0.74

Correlation Coefficient

Annaly Capital  Orchid Island

Poor diversification

The 3 months correlation between Annaly and Orchid is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Annaly Capital Management and Orchid Island Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orchid Island 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 Orchid Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orchid Island Capital has no effect on the direction of Annaly Capital i.e., Annaly Capital and Orchid Island go up and down completely randomly.

Pair Corralation between Annaly Capital and Orchid Island

Considering the 90-day investment horizon Annaly Capital Management is expected to generate 0.85 times more return on investment than Orchid Island. However, Annaly Capital Management is 1.17 times less risky than Orchid Island. It trades about 0.04 of its potential returns per unit of risk. Orchid Island Capital is currently generating about 0.0 per unit of risk. If you would invest  1,947  in Annaly Capital Management on September 3, 2024 and sell it today you would earn a total of  46.00  from holding Annaly Capital Management or generate 2.36% return on investment over 90 days.

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

Annaly Capital Management  vs.  Orchid Island Capital

Annaly Capital Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Annaly Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Orchid Island Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orchid Island Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Orchid Island is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Annaly Capital and Orchid Island

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

The idea behind Annaly Capital Management and Orchid Island 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.