Correlation Between Dynex Capital and Ellington Financial

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

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

Diversification Opportunities for Dynex Capital and Ellington Financial

0.88

Correlation Coefficient

Dynex Capital  Ellington Financial

Very poor diversification

The 3 months correlation between Dynex and Ellington is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dynex Capital and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial and Dynex Capital 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 Dynex Capital are associated (or correlated) with Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of Dynex Capital i.e., Dynex Capital and Ellington Financial go up and down completely randomly.

Pair Corralation between Dynex Capital and Ellington Financial

Allowing for the 90-day total investment horizon Dynex Capital is expected to under-perform the Ellington Financial. But the stock apears to be less risky and, when comparing its historical volatility, Dynex Capital is 1.23 times less risky than Ellington Financial. The stock trades about -0.04 of its potential returns per unit of risk. The Ellington Financial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,218  in Ellington Financial on January 17, 2025 and sell it today you would lose (20.00) from holding Ellington Financial or give up 1.64% of portfolio value over 90 days.

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

Dynex Capital  vs.  Ellington Financial

Dynex Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dynex Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dynex Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Ellington Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Dynex Capital and Ellington Financial

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

The idea behind Dynex Capital and Ellington Financial 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.