Correlation Between Redwood Trust and Apollo Commercial

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

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

Diversification Opportunities for Redwood Trust and Apollo Commercial

-0.16

Correlation Coefficient

Redwood Trust  Apollo Commercial

Good diversification

The 3 months correlation between Redwood and Apollo is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Trust and Apollo Commercial Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apollo Commercial Real and Redwood Trust 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 Trust are associated (or correlated) with Apollo Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apollo Commercial Real has no effect on the direction of Redwood Trust i.e., Redwood Trust and Apollo Commercial go up and down completely randomly.

Pair Corralation between Redwood Trust and Apollo Commercial

Considering the 90-day investment horizon Redwood Trust is expected to under-perform the Apollo Commercial. But the stock apears to be less risky and, when comparing its historical volatility, Redwood Trust is 1.12 times less risky than Apollo Commercial. The stock trades about -0.02 of its potential returns per unit of risk. The Apollo Commercial Real is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  851.00  in Apollo Commercial Real on December 28, 2024 and sell it today you would earn a total of  128.00  from holding Apollo Commercial Real or generate 15.04% return on investment over 90 days.

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

Redwood Trust  vs.  Apollo Commercial Real

Redwood Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Redwood Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Redwood Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Apollo Commercial Real

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Apollo Commercial Real are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Apollo Commercial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Redwood Trust and Apollo Commercial

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

The idea behind Redwood Trust and Apollo Commercial Real 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.