Correlation Between Ellington Financial and TPG RE

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

By analyzing existing cross correlation between Ellington Financial and TPG RE Finance, you can compare the effects of market volatilities on Ellington Financial and TPG RE 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 TPG RE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Financial and TPG RE.

Diversification Opportunities for Ellington Financial and TPG RE

0.2

Correlation Coefficient

Ellington Financial  TPG RE

Modest diversification

The 3 months correlation between Ellington and TPG is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Financial and TPG RE Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPG RE Finance 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 TPG RE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPG RE Finance has no effect on the direction of Ellington Financial i.e., Ellington Financial and TPG RE go up and down completely randomly.

Pair Corralation between Ellington Financial and TPG RE

Considering the 90-day investment horizon Ellington Financial is expected to generate 1.07 times more return on investment than TPG RE. However, Ellington Financial is 1.07 times more volatile than TPG RE Finance. It trades about -0.01 of its potential returns per unit of risk. TPG RE Finance is currently generating about -0.18 per unit of risk. If you would invest  1,178  in Ellington Financial on January 8, 2025 and sell it today you would lose (19.00) from holding Ellington Financial or give up 1.61% of portfolio value over 90 days.

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

Ellington Financial  vs.  TPG RE Finance

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.

TPG RE Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPG RE Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ellington Financial and TPG RE

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

The idea behind Ellington Financial and TPG RE Finance 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.