Can any of the company-specific risk be diversified away by investing in both Annaly Capital and BANORT 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 Annaly Capital and BANORT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Annaly Capital Management and BANORT 8 38, you can compare the effects of market volatilities on Annaly Capital and BANORT 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 Annaly Capital with a short position of BANORT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Annaly Capital and BANORT.
Diversification Opportunities for Annaly Capital and BANORT
The 1 month correlation between Annaly and BANORT is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Annaly Capital Management and BANORT 8 3/8 PERP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANORT 8 38 and Annaly 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 Annaly Capital Management are associated (or correlated) with BANORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANORT 8 38 has no effect on the direction of Annaly Capital i.e., Annaly Capital and BANORT go up and down completely randomly.
Pair Corralation between Annaly Capital and BANORT
Assuming the 90 days trading horizon Annaly Capital Management is expected to generate 0.87 times more return on investment than BANORT. However, Annaly Capital Management is 1.15 times less risky than BANORT. It trades about 0.09 of its potential returns per unit of risk. BANORT 8 38 is currently generating about 0.02 per unit of risk. If you would invest 1,950 in Annaly Capital Management on September 1, 2023 and sell it today you would earn a total of 552.00 from holding Annaly Capital Management or generate 28.31% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Annaly Capital reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in BANORT 8 38 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BANORT sustained solid returns over the last few months and may actually be approaching a breakup point.
The main advantage of trading using opposite Annaly Capital and BANORT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Annaly Capital position performs unexpectedly, BANORT 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 BANORT will offset losses from the drop in BANORT's long position.
The idea behind Annaly Capital Management and BANORT 8 38 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.
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