Correlation Between Redwood Alphafactor and Redwood Systematic
Can any of the company-specific risk be diversified away by investing in both Redwood Alphafactor 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 Redwood Alphafactor and Redwood Systematic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Redwood Alphafactor Tactical and Redwood Systematic Macro, you can compare the effects of market volatilities on Redwood Alphafactor 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 Redwood Alphafactor with a short position of Redwood Systematic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Alphafactor and Redwood Systematic.
Diversification Opportunities for Redwood Alphafactor and Redwood Systematic
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Redwood and Redwood is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Alphafactor Tactical 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 Redwood 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 Redwood Alphafactor Tactical 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 Redwood Alphafactor i.e., Redwood Alphafactor and Redwood Systematic go up and down completely randomly.
Pair Corralation between Redwood Alphafactor and Redwood Systematic
Assuming the 90 days horizon Redwood Alphafactor is expected to generate 1.38 times less return on investment than Redwood Systematic. But when comparing it to its historical volatility, Redwood Alphafactor Tactical is 1.03 times less risky than Redwood Systematic. It trades about 0.04 of its potential returns per unit of risk. Redwood Systematic Macro is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,683 in Redwood Systematic Macro on August 30, 2024 and sell it today you would earn a total of 295.00 from holding Redwood Systematic Macro or generate 17.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Redwood Alphafactor Tactical vs. Redwood Systematic Macro
Performance |
| Timeline |
| Redwood Alphafactor |
| Redwood Systematic Macro |
Redwood Alphafactor and Redwood Systematic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Redwood Alphafactor and Redwood Systematic
The main advantage of trading using opposite Redwood Alphafactor and Redwood Systematic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Alphafactor 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.| Redwood Alphafactor vs. Advent Claymore Convertible | Redwood Alphafactor vs. Rationalpier 88 Convertible | Redwood Alphafactor vs. Fidelity Sai Convertible | Redwood Alphafactor vs. Lord Abbett Convertible |
| Redwood Systematic vs. Western Asset Diversified | Redwood Systematic vs. Pioneer Diversified High | Redwood Systematic vs. Adams Diversified Equity | Redwood Systematic vs. Massmutual Premier Diversified |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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