Correlation Between Regional Management and Granite Point

Can any of the company-specific risk be diversified away by investing in both Regional Management and Granite Point 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 Regional Management and Granite Point into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Regional Management and Granite Point

-0.35

Correlation Coefficient

Regional Management  Granite Point

Very good diversification

The 3 months correlation between Regional and Granite is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Granite Point Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Point Mortgage and Regional Management 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 Regional Management Corp are associated (or correlated) with Granite Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Point Mortgage has no effect on the direction of Regional Management i.e., Regional Management and Granite Point go up and down completely randomly.

Pair Corralation between Regional Management and Granite Point

Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 1.0 times more return on investment than Granite Point. However, Regional Management Corp is 1.0 times less risky than Granite Point. It trades about 0.02 of its potential returns per unit of risk. Granite Point Mortgage is currently generating about -0.01 per unit of risk. If you would invest  2,752  in Regional Management Corp on September 3, 2024 and sell it today you would earn a total of  301.00  from holding Regional Management Corp or generate 10.94% return on investment over 90 days.

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

Regional Management Corp  vs.  Granite Point Mortgage

Regional Management Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Regional Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Granite Point Mortgage

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Point Mortgage are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Granite Point unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Regional Management and Granite Point

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

The idea behind Regional Management Corp and Granite Point 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.