Correlation Between Redwood Real and Madison Core

Can any of the company-specific risk be diversified away by investing in both Redwood Real and Madison Core 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 Madison Core 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 Madison Core Bond, you can compare the effects of market volatilities on Redwood Real and Madison Core 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 Madison Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Real and Madison Core.

Diversification Opportunities for Redwood Real and Madison Core

0.46

Correlation Coefficient

Redwood Real  Madison Core

Very weak diversification

The 3 months correlation between Redwood and Madison is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Real Estate and Madison Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Core Bond 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 Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Core Bond has no effect on the direction of Redwood Real i.e., Redwood Real and Madison Core go up and down completely randomly.

Pair Corralation between Redwood Real and Madison Core

Assuming the 90 days horizon Redwood Real is expected to generate 1.54 times less return on investment than Madison Core. But when comparing it to its historical volatility, Redwood Real Estate is 10.37 times less risky than Madison Core. It trades about 1.1 of its potential returns per unit of risk. Madison Core Bond is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  875.00  in Madison Core Bond on December 21, 2024 and sell it today you would earn a total of  25.00  from holding Madison Core Bond or generate 2.86% return on investment over 90 days.

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

Redwood Real Estate  vs.  Madison Core Bond

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 86 (%) 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.

Madison Core Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Core Bond are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Madison Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Redwood Real and Madison Core

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

The idea behind Redwood Real Estate and Madison Core Bond 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.