Correlation Between Redwood Systematic and Redwood Alphafactor

Can any of the company-specific risk be diversified away by investing in both Redwood Systematic 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 Systematic 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 Systematic Macro and Redwood Alphafactor Tactical, you can compare the effects of market volatilities on Redwood Systematic 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 Systematic with a short position of Redwood Alphafactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Systematic and Redwood Alphafactor.

Diversification Opportunities for Redwood Systematic and Redwood Alphafactor

0.43

Correlation Coefficient

Redwood Systematic  Redwood Alphafactor

Very weak diversification

The 3 months correlation between Redwood and Redwood is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro 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 Systematic 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 Systematic Macro 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 Systematic i.e., Redwood Systematic and Redwood Alphafactor go up and down completely randomly.

Pair Corralation between Redwood Systematic and Redwood Alphafactor

Assuming the 90 days horizon Redwood Systematic Macro is expected to under-perform the Redwood Alphafactor. In addition to that, Redwood Systematic is 1.05 times more volatile than Redwood Alphafactor Tactical. It trades about 0.0 of its total potential returns per unit of risk. Redwood Alphafactor Tactical is currently generating about 0.0 per unit of volatility. If you would invest  1,346  in Redwood Alphafactor Tactical on October 11, 2024 and sell it today you would lose (23.00) from holding Redwood Alphafactor Tactical or give up 1.71% of portfolio value over 90 days.

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

Redwood Systematic Macro  vs.  Redwood Alphafactor Tactical

Redwood Systematic Macro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redwood Systematic Macro has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund 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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Redwood Systematic and Redwood Alphafactor

The main advantage of trading using opposite Redwood Systematic and Redwood Alphafactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Systematic 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 Systematic Macro 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.