Correlation Between Arbor Realty and Orchid Island

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

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

Diversification Opportunities for Arbor Realty and Orchid Island

0.6

Correlation Coefficient

Arbor Realty  Orchid Island

Poor diversification

The 3 months correlation between Arbor and Orchid is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Realty Trust and Orchid Island Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orchid Island Capital and Arbor Realty 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 Arbor Realty Trust are associated (or correlated) with Orchid Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orchid Island Capital has no effect on the direction of Arbor Realty i.e., Arbor Realty and Orchid Island go up and down completely randomly.

Pair Corralation between Arbor Realty and Orchid Island

Considering the 90-day investment horizon Arbor Realty Trust is expected to generate 3.81 times more return on investment than Orchid Island. However, Arbor Realty is 3.81 times more volatile than Orchid Island Capital. It trades about 0.11 of its potential returns per unit of risk. Orchid Island Capital is currently generating about 0.07 per unit of risk. If you would invest  1,259  in Arbor Realty Trust on March 2, 2024 and sell it today you would earn a total of  86.00  from holding Arbor Realty Trust or generate 6.83% return on investment over 90 days.

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

Arbor Realty Trust  vs.  Orchid Island Capital

Arbor Realty Trust

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Realty Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental drivers, Arbor Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Orchid Island Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Arbor Realty and Orchid Island

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

The idea behind Arbor Realty Trust and Orchid Island Capital 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.