Correlation Between Arbor Realty and Starwood Property

Can any of the company-specific risk be diversified away by investing in both Arbor Realty and Starwood Property 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 Arbor Realty and Starwood Property into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arbor Realty Trust and Starwood Property Trust, you can compare the effects of market volatilities on Arbor Realty and Starwood Property 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 Arbor Realty with a short position of Starwood Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbor Realty and Starwood Property.

Diversification Opportunities for Arbor Realty and Starwood Property

-0.49

Correlation Coefficient

Arbor Realty  Starwood Property

Very good diversification

The 3 months correlation between Arbor and Starwood is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Starwood Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starwood Property Trust and Arbor Realty 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 Arbor Realty Trust are associated (or correlated) with Starwood Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starwood Property Trust has no effect on the direction of Arbor Realty i.e., Arbor Realty and Starwood Property go up and down completely randomly.

Pair Corralation between Arbor Realty and Starwood Property

Considering the 90-day investment horizon Arbor Realty Trust is expected to under-perform the Starwood Property. But the stock apears to be less risky and, when comparing its historical volatility, Arbor Realty Trust is 1.07 times less risky than Starwood Property. The stock trades about -0.29 of its potential returns per unit of risk. The Starwood Property Trust is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  1,987  in Starwood Property Trust on January 7, 2025 and sell it today you would lose (165.00) from holding Starwood Property Trust or give up 8.3% of portfolio value over 90 days.

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

Arbor Realty Trust  vs.  Starwood Property Trust

Arbor Realty Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arbor Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in May 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Starwood Property Trust

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Arbor Realty and Starwood Property

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

The idea behind Arbor Realty Trust and Starwood Property Trust 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.