Correlation Between M Large and Redwood Real

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

By analyzing existing cross correlation between M Large Cap and Redwood Real Estate, you can compare the effects of market volatilities on M Large and Redwood Real 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 M Large with a short position of Redwood Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Large and Redwood Real.

Diversification Opportunities for M Large and Redwood Real

0.55

Correlation Coefficient

M Large  Redwood Real

Very weak diversification

The 3 months correlation between MTCGX and Redwood is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Redwood Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Real Estate and M Large 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 M Large Cap are associated (or correlated) with Redwood Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Real Estate has no effect on the direction of M Large i.e., M Large and Redwood Real go up and down completely randomly.

Pair Corralation between M Large and Redwood Real

Assuming the 90 days horizon M Large Cap is expected to generate 24.98 times more return on investment than Redwood Real. However, M Large is 24.98 times more volatile than Redwood Real Estate. It trades about 0.06 of its potential returns per unit of risk. Redwood Real Estate is currently generating about 0.47 per unit of risk. If you would invest  2,422  in M Large Cap on October 4, 2024 and sell it today you would earn a total of  913.00  from holding M Large Cap or generate 37.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	77.62%
Values	Daily Returns

M Large Cap  vs.  Redwood Real Estate

M Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Redwood Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 6 (%) 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.

Pair Trading with M Large and Redwood Real

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

The idea behind M Large Cap and Redwood Real Estate 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 Global Correlations module to find global opportunities by holding instruments from different markets.