Correlation Between Cherry Hill and Orchid Island

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

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

Diversification Opportunities for Cherry Hill and Orchid Island

0.42

Correlation Coefficient

Cherry Hill  Orchid Island

Very weak diversification

The 3 months correlation between Cherry and Orchid is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cherry Hill Mortgage 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 Cherry Hill 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 Cherry Hill Mortgage 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 Cherry Hill i.e., Cherry Hill and Orchid Island go up and down completely randomly.

Pair Corralation between Cherry Hill and Orchid Island

Given the investment horizon of 90 days Cherry Hill Mortgage is expected to under-perform the Orchid Island. But the stock apears to be less risky and, when comparing its historical volatility, Cherry Hill Mortgage is 1.03 times less risky than Orchid Island. The stock trades about -0.02 of its potential returns per unit of risk. The Orchid Island Capital is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,077  in Orchid Island Capital on February 16, 2024 and sell it today you would lose (217.00) from holding Orchid Island Capital or give up 20.15% of portfolio value over 90 days.

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

Cherry Hill Mortgage  vs.  Orchid Island Capital

Cherry Hill Mortgage

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cherry Hill Mortgage are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, Cherry Hill is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Orchid Island Capital

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orchid Island may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Cherry Hill and Orchid Island

The main advantage of trading using opposite Cherry Hill and Orchid Island positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cherry Hill 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 Cherry Hill Mortgage 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.