Correlation Between Redwood Systematic and Stringer Growth
Can any of the company-specific risk be diversified away by investing in both Redwood Systematic and Stringer Growth 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 Systematic and Stringer Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Redwood Systematic Macro and Stringer Growth Fund, you can compare the effects of market volatilities on Redwood Systematic and Stringer Growth 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 Systematic with a short position of Stringer Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Systematic and Stringer Growth.
Diversification Opportunities for Redwood Systematic and Stringer Growth
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Redwood and Stringer is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro and Stringer Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stringer Growth and Redwood Systematic 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 Systematic Macro are associated (or correlated) with Stringer Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stringer Growth has no effect on the direction of Redwood Systematic i.e., Redwood Systematic and Stringer Growth go up and down completely randomly.
Pair Corralation between Redwood Systematic and Stringer Growth
Assuming the 90 days horizon Redwood Systematic Macro is expected to generate 1.63 times more return on investment than Stringer Growth. However, Redwood Systematic is 1.63 times more volatile than Stringer Growth Fund. It trades about 0.25 of its potential returns per unit of risk. Stringer Growth Fund is currently generating about 0.16 per unit of risk. If you would invest 1,884 in Redwood Systematic Macro on August 31, 2024 and sell it today you would earn a total of 94.00 from holding Redwood Systematic Macro or generate 4.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Redwood Systematic Macro vs. Stringer Growth Fund
Performance |
| Timeline |
| Redwood Systematic Macro |
| Stringer Growth |
Redwood Systematic and Stringer Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Redwood Systematic and Stringer Growth
The main advantage of trading using opposite Redwood Systematic and Stringer Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Systematic position performs unexpectedly, Stringer Growth 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 Stringer Growth will offset losses from the drop in Stringer Growth's long position.The idea behind Redwood Systematic Macro and Stringer Growth Fund 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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