Correlation Between HP and ARMOUR Residential

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

Diversification Opportunities for HP and ARMOUR Residential

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between HP and ARMOUR is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT and HP 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 HP Inc are associated (or correlated) with ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of HP i.e., HP and ARMOUR Residential go up and down completely randomly.

Pair Corralation between HP and ARMOUR Residential

Considering the 90-day investment horizon HP is expected to generate 1.31 times less return on investment than ARMOUR Residential. In addition to that, HP is 1.12 times more volatile than ARMOUR Residential REIT. It trades about 0.19 of its total potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.28 per unit of volatility. If you would invest  515.00  in ARMOUR Residential REIT on September 3, 2022 and sell it today you would earn a total of  79.00  from holding ARMOUR Residential REIT or generate 15.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

HP Inc  vs.  ARMOUR Residential REIT

 Performance (%) 
       Timeline  
HP Inc 
HP Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, HP may actually be approaching a critical reversion point that can send shares even higher in January 2023.

HP Price Channel

ARMOUR Residential REIT 
ARMOUR Performance
0 of 100
Over the last 90 days ARMOUR Residential REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

ARMOUR Price Channel

HP and ARMOUR Residential Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and ARMOUR Residential

The main advantage of trading using opposite HP and ARMOUR Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, ARMOUR 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 ARMOUR Residential will offset losses from the drop in ARMOUR Residential's long position.
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The idea behind HP Inc and ARMOUR Residential REIT 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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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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