Correlation Between Ellington Financial and Ares Commercial

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

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

Diversification Opportunities for Ellington Financial and Ares Commercial

0.33

Correlation Coefficient

Ellington Financial  Ares Commercial

Weak diversification

The 3 months correlation between Ellington and Ares is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial and Ares Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Commercial Real and Ellington Financial 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 Ellington Financial are associated (or correlated) with Ares Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Commercial Real has no effect on the direction of Ellington Financial i.e., Ellington Financial and Ares Commercial go up and down completely randomly.

Pair Corralation between Ellington Financial and Ares Commercial

Considering the 90-day investment horizon Ellington Financial is expected to generate 2.91 times less return on investment than Ares Commercial. But when comparing it to its historical volatility, Ellington Financial is 2.45 times less risky than Ares Commercial. It trades about 0.08 of its potential returns per unit of risk. Ares Commercial Real is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  399.00  in Ares Commercial Real on May 6, 2025 and sell it today you would earn a total of  53.00  from holding Ares Commercial Real or generate 13.28% return on investment over 90 days.

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

Ellington Financial  vs.  Ares Commercial Real

Ellington Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ellington Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ellington Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Ares Commercial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ellington Financial and Ares Commercial

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

The idea behind Ellington Financial and Ares Commercial Real 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.