Can any of the company-specific risk be diversified away by investing in both BANORT and Annaly Capital 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 BANORT and Annaly Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BANORT 8 38 and Annaly Capital Management, you can compare the effects of market volatilities on BANORT and Annaly Capital 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 BANORT with a short position of Annaly Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANORT and Annaly Capital.
Diversification Opportunities for BANORT and Annaly Capital
The 3 months correlation between BANORT and Annaly is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding BANORT 8 3/8 PERP and Annaly Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Management and BANORT 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 BANORT 8 38 are associated (or correlated) with Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Management has no effect on the direction of BANORT i.e., BANORT and Annaly Capital go up and down completely randomly.
Pair Corralation between BANORT and Annaly Capital
Assuming the 90 days trading horizon BANORT is expected to generate 1.27 times less return on investment than Annaly Capital. In addition to that, BANORT is 1.0 times more volatile than Annaly Capital Management. It trades about 0.05 of its total potential returns per unit of risk. Annaly Capital Management is currently generating about 0.07 per unit of volatility. If you would invest 2,420 in Annaly Capital Management on September 2, 2023 and sell it today you would earn a total of 74.00 from holding Annaly Capital Management or generate 3.06% return on investment over 90 days.
Over the last 90 days BANORT 8 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BANORT is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Annaly Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite BANORT and Annaly Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BANORT position performs unexpectedly, Annaly Capital 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 Annaly Capital will offset losses from the drop in Annaly Capital's long position.
The idea behind BANORT 8 38 and Annaly Capital Management 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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