Correlation Between Orchid Island and Western Asset

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

Diversification Opportunities for Orchid Island and Western Asset

-0.27

Correlation Coefficient

Orchid Island  Western Asset

Very good diversification

The 3 months correlation between Orchid and Western is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Mortgage has no effect on the direction of Orchid Island i.e., Orchid Island and Western Asset go up and down completely randomly.

Pair Corralation between Orchid Island and Western Asset

If you would invest  957.00  in Western Asset Mortgage on September 2, 2024 and sell it today you would earn a total of  0.00  from holding Western Asset Mortgage or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Orchid Island Capital  vs.  Western Asset Mortgage

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.

Western Asset Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Orchid Island and Western Asset

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

The idea behind Orchid Island Capital and Western Asset Mortgage 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 Global Correlations module to find global opportunities by holding instruments from different markets.