Correlation Between ARMOUR Residential and Ellington Residential

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

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

Diversification Opportunities for ARMOUR Residential and Ellington Residential

0.81

Correlation Coefficient

ARMOUR Residential  Ellington Residential

Very poor diversification

The 3 months correlation between ARMOUR and Ellington is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ARMOUR Residential REIT and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and ARMOUR Residential 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 ARMOUR Residential REIT 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 ARMOUR Residential i.e., ARMOUR Residential and Ellington Residential go up and down completely randomly.

Pair Corralation between ARMOUR Residential and Ellington Residential

Considering the 90-day investment horizon ARMOUR Residential is expected to generate 1.34 times less return on investment than Ellington Residential. In addition to that, ARMOUR Residential is 1.01 times more volatile than Ellington Residential Mortgage. It trades about 0.12 of its total potential returns per unit of risk. Ellington Residential Mortgage is currently generating about 0.17 per unit of volatility. If you would invest  510.00  in Ellington Residential Mortgage on May 6, 2025 and sell it today you would earn a total of  63.00  from holding Ellington Residential Mortgage or generate 12.35% return on investment over 90 days.

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

ARMOUR Residential REIT  vs.  Ellington Residential Mortgage

ARMOUR Residential REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, ARMOUR Residential 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 13 (%) 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 ARMOUR Residential and Ellington Residential

The main advantage of trading using opposite ARMOUR Residential and Ellington Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARMOUR Residential 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 ARMOUR Residential REIT 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.