Correlation Between Redwood Managed and Redwood Alphafactor

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

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

Diversification Opportunities for Redwood Managed and Redwood Alphafactor

0.09

Correlation Coefficient

Redwood Managed  Redwood Alphafactor

Significant diversification

The 3 months correlation between Redwood and Redwood is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Managed Volatility and Redwood Alphafactor Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Alphafactor and Redwood Managed 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 Redwood Managed Volatility 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 Redwood Managed i.e., Redwood Managed and Redwood Alphafactor go up and down completely randomly.

Pair Corralation between Redwood Managed and Redwood Alphafactor

Assuming the 90 days horizon Redwood Managed Volatility is expected to generate 0.24 times more return on investment than Redwood Alphafactor. However, Redwood Managed Volatility is 4.17 times less risky than Redwood Alphafactor. It trades about 0.11 of its potential returns per unit of risk. Redwood Alphafactor Tactical is currently generating about -0.03 per unit of risk. If you would invest  1,121  in Redwood Managed Volatility on October 26, 2024 and sell it today you would earn a total of  12.00  from holding Redwood Managed Volatility or generate 1.07% return on investment over 90 days.

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

Redwood Managed Volatility  vs.  Redwood Alphafactor Tactical

Redwood Managed Vola

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Managed Volatility are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Redwood Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong basic indicators, Redwood Alphafactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Redwood Managed and Redwood Alphafactor

The main advantage of trading using opposite Redwood Managed and Redwood Alphafactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Managed 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 Redwood Managed Volatility 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.