Correlation Between LeaderSharesTM AlphaFactor and Redwood Alphafactor

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

Diversification Opportunities for LeaderSharesTM AlphaFactor and Redwood Alphafactor

0.21

Correlation Coefficient

LeaderSharesTM AlphaFactor  Redwood Alphafactor

Modest diversification

The 3 months correlation between LeaderSharesTM and Redwood is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding LeaderSharesTM AlphaFactor Cor and Redwood Alphafactor Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Alphafactor 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 Alphafactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Alphafactor has no effect on the direction of LeaderSharesTM AlphaFactor i.e., LeaderSharesTM AlphaFactor and Redwood Alphafactor go up and down completely randomly.

Pair Corralation between LeaderSharesTM AlphaFactor and Redwood Alphafactor

Given the investment horizon of 90 days LeaderSharesTM AlphaFactor Core is expected to generate 1.18 times more return on investment than Redwood Alphafactor. However, LeaderSharesTM AlphaFactor is 1.18 times more volatile than Redwood Alphafactor Tactical. It trades about 0.07 of its potential returns per unit of risk. Redwood Alphafactor Tactical is currently generating about 0.0 per unit of risk. If you would invest  3,087  in LeaderSharesTM AlphaFactor Core on October 11, 2024 and sell it today you would earn a total of  1,012  from holding LeaderSharesTM AlphaFactor Core or generate 32.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

LeaderSharesTM AlphaFactor Cor  vs.  Redwood Alphafactor Tactical

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 Alphafactor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redwood Alphafactor Tactical 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 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 LeaderSharesTM AlphaFactor and Redwood Alphafactor

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

The idea behind LeaderSharesTM AlphaFactor Core and Redwood Alphafactor Tactical 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 Managers module to screen money managers from public funds and ETFs managed around the world.