Correlation Between Redwood Real and Pax Large

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

Diversification Opportunities for Redwood Real and Pax Large

0.38

Correlation Coefficient

Redwood Real  Pax Large

Weak diversification

The 3 months correlation between Redwood and Pax is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Real Estate and Pax Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Large Cap 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 Pax Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Large Cap has no effect on the direction of Redwood Real i.e., Redwood Real and Pax Large go up and down completely randomly.

Pair Corralation between Redwood Real and Pax Large

Assuming the 90 days horizon Redwood Real is expected to generate 2.24 times less return on investment than Pax Large. But when comparing it to its historical volatility, Redwood Real Estate is 8.22 times less risky than Pax Large. It trades about 0.2 of its potential returns per unit of risk. Pax Large Cap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,516  in Pax Large Cap on September 15, 2024 and sell it today you would earn a total of  36.00  from holding Pax Large Cap or generate 2.37% return on investment over 90 days.

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

Redwood Real Estate  vs.  Pax Large Cap

Redwood Real Estate

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 15 (%) 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.

Pax Large Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Large Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Pax Large 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 Pax Large

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

The idea behind Redwood Real Estate and Pax Large Cap 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.