Correlation Between AG Mortgage and Redwood Trust

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

By analyzing existing cross correlation between AG Mortgage Investment and Redwood Trust, you can compare the effects of market volatilities on AG Mortgage and Redwood Trust 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 AG Mortgage with a short position of Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of AG Mortgage and Redwood Trust.

Diversification Opportunities for AG Mortgage and Redwood Trust

0.83

Correlation Coefficient

AG Mortgage  Redwood Trust

Very poor diversification

The 3 months correlation between MITT and Redwood is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding AG Mortgage Investment and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and AG Mortgage 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 AG Mortgage Investment are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of AG Mortgage i.e., AG Mortgage and Redwood Trust go up and down completely randomly.

Pair Corralation between AG Mortgage and Redwood Trust

Given the investment horizon of 90 days AG Mortgage Investment is expected to generate 0.98 times more return on investment than Redwood Trust. However, AG Mortgage Investment is 1.02 times less risky than Redwood Trust. It trades about 0.06 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.03 per unit of risk. If you would invest  544.00  in AG Mortgage Investment on September 4, 2024 and sell it today you would earn a total of  134.00  from holding AG Mortgage Investment or generate 24.63% return on investment over 90 days.

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

AG Mortgage Investment  vs.  Redwood Trust

AG Mortgage Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AG Mortgage Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, AG Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Redwood Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redwood Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Redwood Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AG Mortgage and Redwood Trust

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

The idea behind AG Mortgage Investment and Redwood Trust 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.