Correlation Between Two Harbors and New York

Can any of the company-specific risk be diversified away by investing in both Two Harbors and New York 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 Two Harbors and New York into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Two Harbors Investment and New York Mortgage, you can compare the effects of market volatilities on Two Harbors and New York 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 Two Harbors with a short position of New York. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and New York.

Diversification Opportunities for Two Harbors and New York

0.6

Correlation Coefficient

Two Harbors  New York

Poor diversification

The 3 months correlation between Two and New is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investment and New York Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New York Mortgage and Two Harbors 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 Two Harbors Investment are associated (or correlated) with New York. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New York Mortgage has no effect on the direction of Two Harbors i.e., Two Harbors and New York go up and down completely randomly.

Pair Corralation between Two Harbors and New York

Assuming the 90 days trading horizon Two Harbors Investment is expected to generate 0.68 times more return on investment than New York. However, Two Harbors Investment is 1.47 times less risky than New York. It trades about -0.02 of its potential returns per unit of risk. New York Mortgage is currently generating about -0.2 per unit of risk. If you would invest  2,436  in Two Harbors Investment on September 29, 2024 and sell it today you would lose (19.00) from holding Two Harbors Investment or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Two Harbors Investment  vs.  New York Mortgage

Two Harbors Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Two Harbors Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Two Harbors is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

New York Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New York Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Two Harbors and New York

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

The idea behind Two Harbors Investment and New York 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.