Correlation Between LeaderSharesTM AlphaFactor and Redwood Managed

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

By analyzing existing cross correlation between LeaderSharesTM AlphaFactor Core and Redwood Managed Volatility, you can compare the effects of market volatilities on LeaderSharesTM AlphaFactor and Redwood Managed 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 LeaderSharesTM AlphaFactor with a short position of Redwood Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of LeaderSharesTM AlphaFactor and Redwood Managed.

Diversification Opportunities for LeaderSharesTM AlphaFactor and Redwood Managed

0.66

Correlation Coefficient

LeaderSharesTM AlphaFactor  Redwood Managed

Poor diversification

The 3 months correlation between LeaderSharesTM and Redwood is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding LeaderSharesTM AlphaFactor Cor and Redwood Managed Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Managed Vola and LeaderSharesTM AlphaFactor 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 LeaderSharesTM AlphaFactor Core are associated (or correlated) with Redwood Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Managed Vola has no effect on the direction of LeaderSharesTM AlphaFactor i.e., LeaderSharesTM AlphaFactor and Redwood Managed go up and down completely randomly.

Pair Corralation between LeaderSharesTM AlphaFactor and Redwood Managed

Given the investment horizon of 90 days LeaderSharesTM AlphaFactor Core is expected to generate 2.44 times more return on investment than Redwood Managed. However, LeaderSharesTM AlphaFactor is 2.44 times more volatile than Redwood Managed Volatility. It trades about -0.04 of its potential returns per unit of risk. Redwood Managed Volatility is currently generating about -0.1 per unit of risk. If you would invest  4,194  in LeaderSharesTM AlphaFactor Core on October 12, 2024 and sell it today you would lose (95.00) from holding LeaderSharesTM AlphaFactor Core or give up 2.27% of portfolio value over 90 days.

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

LeaderSharesTM AlphaFactor Cor  vs.  Redwood Managed Volatility

LeaderSharesTM AlphaFactor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LeaderSharesTM AlphaFactor Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LeaderSharesTM AlphaFactor is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Redwood Managed Vola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redwood Managed Volatility has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Redwood Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LeaderSharesTM AlphaFactor and Redwood Managed

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

The idea behind LeaderSharesTM AlphaFactor Core and Redwood Managed Volatility 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.