Correlation Between Orchid Island and Income Opportunity

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

By analyzing existing cross correlation between Orchid Island Capital and Income Opportunity Realty, you can compare the effects of market volatilities on Orchid Island and Income Opportunity 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 Orchid Island with a short position of Income Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orchid Island and Income Opportunity.

Diversification Opportunities for Orchid Island and Income Opportunity

0.17

Correlation Coefficient

Orchid Island  Income Opportunity

Average diversification

The 3 months correlation between Orchid and Income is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Income Opportunity Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Opportunity Realty and Orchid Island 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 Orchid Island Capital are associated (or correlated) with Income Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Opportunity Realty has no effect on the direction of Orchid Island i.e., Orchid Island and Income Opportunity go up and down completely randomly.

Pair Corralation between Orchid Island and Income Opportunity

Considering the 90-day investment horizon Orchid Island is expected to generate 1.91 times less return on investment than Income Opportunity. But when comparing it to its historical volatility, Orchid Island Capital is 2.56 times less risky than Income Opportunity. It trades about 0.04 of its potential returns per unit of risk. Income Opportunity Realty is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,748  in Income Opportunity Realty on September 25, 2024 and sell it today you would earn a total of  33.00  from holding Income Opportunity Realty or generate 1.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	65.63%
Values	Daily Returns

Orchid Island Capital  vs.  Income Opportunity Realty

Orchid Island Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Orchid Island is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Income Opportunity Realty

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Opportunity Realty are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Income Opportunity is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Orchid Island and Income Opportunity

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

The idea behind Orchid Island Capital and Income Opportunity Realty 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.