Correlation Between Inverse Government and Redwood Alphafactor

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

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

Diversification Opportunities for Inverse Government and Redwood Alphafactor

-0.86

Correlation Coefficient

Inverse Government  Redwood Alphafactor

Pay attention - limited upside

The 3 months correlation between Inverse and Redwood is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Redwood Alphafactor Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Alphafactor and Inverse Government 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 Inverse Government Long 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 Inverse Government i.e., Inverse Government and Redwood Alphafactor go up and down completely randomly.

Pair Corralation between Inverse Government and Redwood Alphafactor

Assuming the 90 days horizon Inverse Government Long is expected to generate 0.36 times more return on investment than Redwood Alphafactor. However, Inverse Government Long is 2.79 times less risky than Redwood Alphafactor. It trades about 0.66 of its potential returns per unit of risk. Redwood Alphafactor Tactical is currently generating about -0.28 per unit of risk. If you would invest  17,443  in Inverse Government Long on October 11, 2024 and sell it today you would earn a total of  1,514  from holding Inverse Government Long or generate 8.68% return on investment over 90 days.

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

Inverse Government Long  vs.  Redwood Alphafactor Tactical

Inverse Government Long

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Government may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Inverse Government and Redwood Alphafactor

The main advantage of trading using opposite Inverse Government and Redwood Alphafactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government 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 Inverse Government Long 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.