Correlation Between Redwood Real and Midcap Growth

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

Diversification Opportunities for Redwood Real and Midcap Growth

-0.43

Correlation Coefficient

Redwood Real  Midcap Growth

Very good diversification

The 3 months correlation between Redwood and Midcap is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Real Estate and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth 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 Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Redwood Real i.e., Redwood Real and Midcap Growth go up and down completely randomly.

Pair Corralation between Redwood Real and Midcap Growth

Assuming the 90 days horizon Redwood Real Estate is expected to generate 0.0 times more return on investment than Midcap Growth. However, Redwood Real Estate is 279.86 times less risky than Midcap Growth. It trades about 1.1 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about -0.11 per unit of risk. If you would invest  2,476  in Redwood Real Estate on October 26, 2024 and sell it today you would earn a total of  43.00  from holding Redwood Real Estate or generate 1.74% return on investment over 90 days.

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

Redwood Real Estate  vs.  Midcap Growth Fund

Redwood Real Estate

Risk-Adjusted Performance

86 of 100

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.

Midcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Midcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward-looking indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Redwood Real and Midcap Growth

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

The idea behind Redwood Real Estate and Midcap Growth Fund 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.