Correlation Between Two Harbors and Dynex Capital

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

By analyzing existing cross correlation between Two Harbors Investments and Dynex Capital, you can compare the effects of market volatilities on Two Harbors and Dynex Capital 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 Dynex Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and Dynex Capital.

Diversification Opportunities for Two Harbors and Dynex Capital

-0.08

Correlation Coefficient

Two Harbors  Dynex Capital

Good diversification

The 3 months correlation between Two and Dynex is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and Dynex Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynex Capital 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 Investments are associated (or correlated) with Dynex Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynex Capital has no effect on the direction of Two Harbors i.e., Two Harbors and Dynex Capital go up and down completely randomly.

Pair Corralation between Two Harbors and Dynex Capital

Considering the 90-day investment horizon Two Harbors Investments is expected to under-perform the Dynex Capital. In addition to that, Two Harbors is 1.41 times more volatile than Dynex Capital. It trades about -0.17 of its total potential returns per unit of risk. Dynex Capital is currently generating about 0.07 per unit of volatility. If you would invest  1,207  in Dynex Capital on September 3, 2024 and sell it today you would earn a total of  48.00  from holding Dynex Capital or generate 3.98% return on investment over 90 days.

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

Two Harbors Investments  vs.  Dynex Capital

Two Harbors Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Two Harbors Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Dynex Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dynex Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Two Harbors and Dynex Capital

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

The idea behind Two Harbors Investments and Dynex Capital 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.