Correlation Between LeaderSharesTM AlphaFactor and Redwood Managed
Can any of the company-specific risk be diversified away by investing in both LeaderSharesTM AlphaFactor and Redwood Managed 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 LeaderSharesTM AlphaFactor and Redwood Managed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LeaderSharesTM AlphaFactor Core and Redwood Managed Municipal, you can compare the effects of market volatilities on LeaderSharesTM AlphaFactor and Redwood Managed 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 LeaderSharesTM AlphaFactor with a short position of Redwood Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of LeaderSharesTM AlphaFactor and Redwood Managed.
Diversification Opportunities for LeaderSharesTM AlphaFactor and Redwood Managed
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between LeaderSharesTM and Redwood is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding LeaderSharesTM AlphaFactor Cor and Redwood Managed Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Managed Municipal and LeaderSharesTM AlphaFactor 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 LeaderSharesTM AlphaFactor Core are associated (or correlated) with Redwood Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Managed Municipal has no effect on the direction of LeaderSharesTM AlphaFactor i.e., LeaderSharesTM AlphaFactor and Redwood Managed go up and down completely randomly.
Pair Corralation between LeaderSharesTM AlphaFactor and Redwood Managed
Given the investment horizon of 90 days LeaderSharesTM AlphaFactor Core is expected to generate 4.02 times more return on investment than Redwood Managed. However, LeaderSharesTM AlphaFactor is 4.02 times more volatile than Redwood Managed Municipal. It trades about 0.08 of its potential returns per unit of risk. Redwood Managed Municipal is currently generating about 0.04 per unit of risk. If you would invest 3,040 in LeaderSharesTM AlphaFactor Core on August 30, 2024 and sell it today you would earn a total of 1,360 from holding LeaderSharesTM AlphaFactor Core or generate 44.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LeaderSharesTM AlphaFactor Cor vs. Redwood Managed Municipal
Performance |
| Timeline |
| LeaderSharesTM AlphaFactor |
| Redwood Managed Municipal |
LeaderSharesTM AlphaFactor and Redwood Managed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LeaderSharesTM AlphaFactor and Redwood Managed
The main advantage of trading using opposite LeaderSharesTM AlphaFactor and Redwood Managed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LeaderSharesTM AlphaFactor position performs unexpectedly, Redwood Managed 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 Managed will offset losses from the drop in Redwood Managed's long position.The idea behind LeaderSharesTM AlphaFactor Core and Redwood Managed Municipal 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.
| Redwood Managed vs. Nuveen High Yield | Redwood Managed vs. Nuveen High Yield | Redwood Managed vs. Nuveen High Yield | Redwood Managed vs. American High Income Municipal |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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