Correlation Between Dow Jones and Redwood Systematic
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Redwood Systematic 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 Dow Jones and Redwood Systematic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Redwood Systematic Macro, you can compare the effects of market volatilities on Dow Jones and Redwood Systematic 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 Dow Jones with a short position of Redwood Systematic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Redwood Systematic.
Diversification Opportunities for Dow Jones and Redwood Systematic
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Redwood is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Redwood Systematic Macro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Systematic Macro and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Redwood Systematic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Systematic Macro has no effect on the direction of Dow Jones i.e., Dow Jones and Redwood Systematic go up and down completely randomly.
Pair Corralation between Dow Jones and Redwood Systematic
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.09 times more return on investment than Redwood Systematic. However, Dow Jones is 1.09 times more volatile than Redwood Systematic Macro. It trades about 0.33 of its potential returns per unit of risk. Redwood Systematic Macro is currently generating about 0.19 per unit of risk. If you would invest 4,239,227 in Dow Jones Industrial on November 3, 2024 and sell it today you would earn a total of 215,239 from holding Dow Jones Industrial or generate 5.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Dow Jones Industrial vs. Redwood Systematic Macro
Performance |
| Timeline |
Dow Jones and Redwood Systematic Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Redwood Systematic Macro
Pair trading matchups for Redwood Systematic
Pair Trading with Dow Jones and Redwood Systematic
The main advantage of trading using opposite Dow Jones and Redwood Systematic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Redwood Systematic 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 Systematic will offset losses from the drop in Redwood Systematic's long position.| Dow Jones vs. Rambler Metals and | Dow Jones vs. Nicola Mining | Dow Jones vs. Old Dominion Freight | Dow Jones vs. United Guardian |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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