Correlation Between NYSE Composite and Redwood Systematic

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

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

Diversification Opportunities for NYSE Composite and Redwood Systematic

0.38

Correlation Coefficient

NYSE Composite  Redwood Systematic

Weak diversification

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

Pair Corralation between NYSE Composite and Redwood Systematic

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.06 times more return on investment than Redwood Systematic. However, NYSE Composite is 1.06 times more volatile than Redwood Systematic Macro. It trades about 0.02 of its potential returns per unit of risk. Redwood Systematic Macro is currently generating about -0.06 per unit of risk. If you would invest  1,907,793  in NYSE Composite on December 30, 2024 and sell it today you would earn a total of  19,237  from holding NYSE Composite or generate 1.01% return on investment over 90 days.

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

NYSE Composite  vs.  Redwood Systematic Macro

Pair Trading with NYSE Composite and Redwood Systematic

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

The idea behind NYSE Composite and Redwood Systematic Macro 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.