Correlation Between TPG RE and Ellington Residential

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

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

Diversification Opportunities for TPG RE and Ellington Residential

0.5

Correlation Coefficient

TPG RE  Ellington Residential

Very weak diversification

The 3 months correlation between TPG and Ellington is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding TPG RE Finance and Ellington Residential Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Residential and TPG RE 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 TPG RE Finance 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 TPG RE i.e., TPG RE and Ellington Residential go up and down completely randomly.

Pair Corralation between TPG RE and Ellington Residential

Given the investment horizon of 90 days TPG RE Finance is expected to generate 0.84 times more return on investment than Ellington Residential. However, TPG RE Finance is 1.19 times less risky than Ellington Residential. It trades about -0.09 of its potential returns per unit of risk. Ellington Residential Mortgage is currently generating about -0.27 per unit of risk. If you would invest  817.00  in TPG RE Finance on January 7, 2025 and sell it today you would lose (68.00) from holding TPG RE Finance or give up 8.32% of portfolio value over 90 days.

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

TPG RE Finance  vs.  Ellington Residential Mortgage

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 latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ellington Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ellington Residential Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with TPG RE and Ellington Residential

The main advantage of trading using opposite TPG RE and Ellington Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPG RE 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 TPG RE Finance 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.