Correlation Between Redwood Trust and Dynex Capital

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

By analyzing existing cross correlation between Redwood Trust and Dynex Capital, you can compare the effects of market volatilities on Redwood Trust and Dynex Capital 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 Dynex Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Trust and Dynex Capital.

Diversification Opportunities for Redwood Trust and Dynex Capital

-0.1

Correlation Coefficient

Redwood Trust  Dynex Capital

Good diversification

The 3 months correlation between Redwood and Dynex is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Trust and Dynex Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynex Capital 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 Dynex Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynex Capital has no effect on the direction of Redwood Trust i.e., Redwood Trust and Dynex Capital go up and down completely randomly.

Pair Corralation between Redwood Trust and Dynex Capital

Considering the 90-day investment horizon Redwood Trust is expected to under-perform the Dynex Capital. In addition to that, Redwood Trust is 1.5 times more volatile than Dynex Capital. It trades about -0.03 of its total potential returns per unit of risk. Dynex Capital is currently generating about 0.21 per unit of volatility. If you would invest  1,200  in Dynex Capital on December 27, 2024 and sell it today you would earn a total of  160.00  from holding Dynex Capital or generate 13.33% 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.  Dynex Capital

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Dynex Capital

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Dynex Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Redwood Trust and Dynex Capital

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

The idea behind Redwood Trust and Dynex Capital 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.