Correlation Between Redwood Real and Dodge Cox

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

By analyzing existing cross correlation between Redwood Real Estate and Dodge Global Stock, you can compare the effects of market volatilities on Redwood Real and Dodge Cox 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 Redwood Real with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Real and Dodge Cox.

Diversification Opportunities for Redwood Real and Dodge Cox

0.88

Correlation Coefficient

Redwood Real  Dodge Cox

Very poor diversification

The 3 months correlation between Redwood and Dodge is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Real Estate and Dodge Global Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Global Stock and Redwood Real 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 Redwood Real Estate are associated (or correlated) with Dodge Cox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodge Global Stock has no effect on the direction of Redwood Real i.e., Redwood Real and Dodge Cox go up and down completely randomly.

Pair Corralation between Redwood Real and Dodge Cox

Assuming the 90 days horizon Redwood Real is expected to generate 3.49 times less return on investment than Dodge Cox. But when comparing it to its historical volatility, Redwood Real Estate is 28.69 times less risky than Dodge Cox. It trades about 1.11 of its potential returns per unit of risk. Dodge Global Stock is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,369  in Dodge Global Stock on December 29, 2024 and sell it today you would earn a total of  90.00  from holding Dodge Global Stock or generate 6.57% return on investment over 90 days.

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

Redwood Real Estate  vs.  Dodge Global Stock

Redwood Real Estate

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 87 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Redwood Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dodge Global Stock

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Global Stock are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dodge Cox may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Redwood Real and Dodge Cox

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

The idea behind Redwood Real Estate and Dodge Global Stock 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.