Correlation Between Ares Commercial and Ellington Residential

Can any of the company-specific risk be diversified away by investing in both Ares Commercial and Ellington Residential 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 Ares Commercial and Ellington Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ares Commercial Real and Ellington Residential Mortgage, you can compare the effects of market volatilities on Ares Commercial and Ellington Residential 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 Ares Commercial with a short position of Ellington Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and Ellington Residential.

Diversification Opportunities for Ares Commercial and Ellington Residential

0.45

Correlation Coefficient

Ares Commercial  Ellington Residential

Very weak diversification

The 3 months correlation between Ares and Ellington is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and Ares Commercial 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 Ares Commercial Real are associated (or correlated) with Ellington Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Residential has no effect on the direction of Ares Commercial i.e., Ares Commercial and Ellington Residential go up and down completely randomly.

Pair Corralation between Ares Commercial and Ellington Residential

Given the investment horizon of 90 days Ares Commercial Real is expected to generate 2.12 times more return on investment than Ellington Residential. However, Ares Commercial is 2.12 times more volatile than Ellington Residential Mortgage. It trades about 0.08 of its potential returns per unit of risk. Ellington Residential Mortgage is currently generating about 0.15 per unit of risk. If you would invest  399.00  in Ares Commercial Real on May 6, 2025 and sell it today you would earn a total of  45.00  from holding Ares Commercial Real or generate 11.28% return on investment over 90 days.

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

Ares Commercial Real  vs.  Ellington Residential Mortgage

Ares Commercial Real

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Commercial Real are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Ares Commercial may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Ellington Residential

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Residential Mortgage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Ellington Residential may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Ares Commercial and Ellington Residential

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

The idea behind Ares Commercial Real and Ellington Residential 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.