Correlation Between Redwood Real and Preferred Securities

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

Diversification Opportunities for Redwood Real and Preferred Securities

0.76

Correlation Coefficient

Redwood Real  Preferred Securities

Poor diversification

The 3 months correlation between Redwood and Preferred is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Real Estate and Preferred Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Securities 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 Preferred Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Securities has no effect on the direction of Redwood Real i.e., Redwood Real and Preferred Securities go up and down completely randomly.

Pair Corralation between Redwood Real and Preferred Securities

Assuming the 90 days horizon Redwood Real is expected to generate 1.36 times less return on investment than Preferred Securities. But when comparing it to its historical volatility, Redwood Real Estate is 3.35 times less risky than Preferred Securities. It trades about 1.09 of its potential returns per unit of risk. Preferred Securities Fund is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  917.00  in Preferred Securities Fund on December 5, 2024 and sell it today you would earn a total of  8.00  from holding Preferred Securities Fund or generate 0.87% return on investment over 90 days.

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

Redwood Real Estate  vs.  Preferred Securities Fund

Redwood Real Estate

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 88 (%) 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.

Preferred Securities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Securities Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Preferred Securities 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 Preferred Securities

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

The idea behind Redwood Real Estate and Preferred Securities 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.