Correlation Between Orchid Island and Two Harbors

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

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

Diversification Opportunities for Orchid Island and Two Harbors

0.62

Correlation Coefficient

Orchid Island  Two Harbors

Poor diversification

The 3 months correlation between Orchid and Two is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments and Orchid Island 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 Orchid Island Capital are associated (or correlated) with Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Orchid Island i.e., Orchid Island and Two Harbors go up and down completely randomly.

Pair Corralation between Orchid Island and Two Harbors

Considering the 90-day investment horizon Orchid Island is expected to generate 7.19 times less return on investment than Two Harbors. In addition to that, Orchid Island is 1.1 times more volatile than Two Harbors Investments. It trades about 0.01 of its total potential returns per unit of risk. Two Harbors Investments is currently generating about 0.08 per unit of volatility. If you would invest  1,221  in Two Harbors Investments on March 14, 2024 and sell it today you would earn a total of  77.00  from holding Two Harbors Investments or generate 6.31% return on investment over 90 days.

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

Orchid Island Capital  vs.  Two Harbors Investments

Orchid Island Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Two Harbors Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Two Harbors may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Orchid Island and Two Harbors

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

The idea behind Orchid Island Capital and Two Harbors Investments 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.