Correlation Between Two Harbors and AG Mortgage

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Can any of the company-specific risk be diversified away by investing in both Two Harbors and AG Mortgage 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 Two Harbors and AG Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Two Harbors Investment and AG Mortgage Investment, you can compare the effects of market volatilities on Two Harbors and AG Mortgage 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 Two Harbors with a short position of AG Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and AG Mortgage.

Diversification Opportunities for Two Harbors and AG Mortgage

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Two and MITT-PB is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investment and AG Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AG Mortgage Investment and Two Harbors 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 Two Harbors Investment are associated (or correlated) with AG Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AG Mortgage Investment has no effect on the direction of Two Harbors i.e., Two Harbors and AG Mortgage go up and down completely randomly.

Pair Corralation between Two Harbors and AG Mortgage

Assuming the 90 days trading horizon Two Harbors is expected to generate 1.36 times less return on investment than AG Mortgage. But when comparing it to its historical volatility, Two Harbors Investment is 1.04 times less risky than AG Mortgage. It trades about 0.09 of its potential returns per unit of risk. AG Mortgage Investment is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,317  in AG Mortgage Investment on July 7, 2024 and sell it today you would earn a total of  908.00  from holding AG Mortgage Investment or generate 68.94% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Two Harbors Investment  vs.  AG Mortgage Investment

 Performance 
       Timeline  
Two Harbors Investment 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Two Harbors may actually be approaching a critical reversion point that can send shares even higher in November 2024.
AG Mortgage Investment 

Risk-Adjusted Performance

26 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, AG Mortgage sustained solid returns over the last few months and may actually be approaching a breakup point.

Two Harbors and AG Mortgage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Two Harbors and AG Mortgage

The main advantage of trading using opposite Two Harbors and AG Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Two Harbors position performs unexpectedly, AG Mortgage 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 AG Mortgage will offset losses from the drop in AG Mortgage's long position.
The idea behind Two Harbors Investment and AG Mortgage Investment 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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