Correlation Between Red Oak and Massmutual Select

Can any of the company-specific risk be diversified away by investing in both Red Oak and Massmutual Select 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 Red Oak and Massmutual Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Red Oak Technology and Massmutual Select Diversified, you can compare the effects of market volatilities on Red Oak and Massmutual Select 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 Red Oak with a short position of Massmutual Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Oak and Massmutual Select.

Diversification Opportunities for Red Oak and Massmutual Select

0.49

Correlation Coefficient

Red Oak  Massmutual Select

Very weak diversification

The 3 months correlation between Red and Massmutual is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Red Oak Technology and Massmutual Select Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Massmutual Select and Red Oak 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 Red Oak Technology are associated (or correlated) with Massmutual Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Massmutual Select has no effect on the direction of Red Oak i.e., Red Oak and Massmutual Select go up and down completely randomly.

Pair Corralation between Red Oak and Massmutual Select

Assuming the 90 days horizon Red Oak Technology is expected to under-perform the Massmutual Select. But the mutual fund apears to be less risky and, when comparing its historical volatility, Red Oak Technology is 1.57 times less risky than Massmutual Select. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Massmutual Select Diversified is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,132  in Massmutual Select Diversified on December 22, 2024 and sell it today you would earn a total of  0.00  from holding Massmutual Select Diversified or generate 0.0% return on investment over 90 days.

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

Red Oak Technology  vs.  Massmutual Select Diversified

Red Oak Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Red Oak Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Massmutual Select

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Red Oak and Massmutual Select

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

The idea behind Red Oak Technology and Massmutual Select Diversified 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.