Correlation Between AGNC Investment and Redwood Trust

Can any of the company-specific risk be diversified away by investing in both AGNC Investment and Redwood Trust 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 AGNC Investment and Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AGNC Investment Corp and Redwood Trust, you can compare the effects of market volatilities on AGNC Investment and Redwood Trust 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 AGNC Investment with a short position of Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGNC Investment and Redwood Trust.

Diversification Opportunities for AGNC Investment and Redwood Trust

0.75

Correlation Coefficient

AGNC Investment  Redwood Trust

Poor diversification

The 3 months correlation between AGNC and Redwood is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding AGNC Investment Corp and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and AGNC Investment 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 AGNC Investment Corp are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of AGNC Investment i.e., AGNC Investment and Redwood Trust go up and down completely randomly.

Pair Corralation between AGNC Investment and Redwood Trust

Assuming the 90 days horizon AGNC Investment Corp is expected to under-perform the Redwood Trust. But the stock apears to be less risky and, when comparing its historical volatility, AGNC Investment Corp is 1.37 times less risky than Redwood Trust. The stock trades about -0.01 of its potential returns per unit of risk. The Redwood Trust is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,569  in Redwood Trust on September 23, 2024 and sell it today you would earn a total of  7.00  from holding Redwood Trust or generate 0.27% return on investment over 90 days.

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

AGNC Investment Corp  vs.  Redwood Trust

AGNC Investment Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AGNC Investment Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, AGNC Investment is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Redwood Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Redwood Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AGNC Investment and Redwood Trust

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

The idea behind AGNC Investment Corp and Redwood Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.