Correlation Between Redwood Systematic and Redwood Managed

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

Diversification Opportunities for Redwood Systematic and Redwood Managed

0.45

Correlation Coefficient

Redwood Systematic  Redwood Managed

Very weak diversification

The 3 months correlation between Redwood and Redwood is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro and Redwood Managed Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Managed Vola 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 Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Managed Vola has no effect on the direction of Redwood Systematic i.e., Redwood Systematic and Redwood Managed go up and down completely randomly.

Pair Corralation between Redwood Systematic and Redwood Managed

Assuming the 90 days horizon Redwood Systematic is expected to generate 1.52 times less return on investment than Redwood Managed. In addition to that, Redwood Systematic is 3.2 times more volatile than Redwood Managed Volatility. It trades about 0.01 of its total potential returns per unit of risk. Redwood Managed Volatility is currently generating about 0.04 per unit of volatility. If you would invest  1,113  in Redwood Managed Volatility on October 26, 2024 and sell it today you would earn a total of  46.00  from holding Redwood Managed Volatility or generate 4.13% return on investment over 90 days.

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

Redwood Systematic Macro  vs.  Redwood Managed Volatility

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

Redwood Managed Vola

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Managed Volatility are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Redwood Managed 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 Systematic and Redwood Managed

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

The idea behind Redwood Systematic Macro and Redwood Managed Volatility 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.