Correlation Between Vanguard Total and Redwood Real

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

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

Diversification Opportunities for Vanguard Total and Redwood Real

-0.58

Correlation Coefficient

Vanguard Total  Redwood Real

Excellent diversification

The 3 months correlation between Vanguard and Redwood is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Redwood Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Real Estate and Vanguard Total 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 Vanguard Total Stock are associated (or correlated) with Redwood Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Real Estate has no effect on the direction of Vanguard Total i.e., Vanguard Total and Redwood Real go up and down completely randomly.

Pair Corralation between Vanguard Total and Redwood Real

Assuming the 90 days horizon Vanguard Total Stock is expected to under-perform the Redwood Real. In addition to that, Vanguard Total is 11.68 times more volatile than Redwood Real Estate. It trades about -0.09 of its total potential returns per unit of risk. Redwood Real Estate is currently generating about 0.23 per unit of volatility. If you would invest  2,475  in Redwood Real Estate on December 30, 2024 and sell it today you would earn a total of  31.00  from holding Redwood Real Estate or generate 1.25% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Redwood Real Estate

Vanguard Total Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Total Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Redwood Real Estate

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Redwood Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Redwood Real

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

The idea behind Vanguard Total Stock and Redwood Real Estate 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.