Correlation Between New York and MFA Financial

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Can any of the company-specific risk be diversified away by investing in both New York and MFA 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 New York and MFA Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New York Mortgage and MFA Financial, you can compare the effects of market volatilities on New York and MFA 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 New York with a short position of MFA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of New York and MFA Financial.

Diversification Opportunities for New York and MFA Financial

0.74
  Correlation Coefficient

Poor diversification

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

Pair Corralation between New York and MFA Financial

Assuming the 90 days horizon New York Mortgage is expected to under-perform the MFA Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, New York Mortgage is 1.51 times less risky than MFA Financial. The preferred stock trades about -0.11 of its potential returns per unit of risk. The MFA Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,202  in MFA Financial on September 6, 2024 and sell it today you would lose (22.00) from holding MFA Financial or give up 1.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

New York Mortgage  vs.  MFA Financial

 Performance 
       Timeline  
New York Mortgage 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in New York Mortgage are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, New York is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
MFA Financial 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in MFA Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, MFA Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

New York and MFA Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with New York and MFA Financial

The main advantage of trading using opposite New York and MFA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New York position performs unexpectedly, MFA 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 MFA Financial will offset losses from the drop in MFA Financial's long position.
The idea behind New York Mortgage and MFA 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.
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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