Correlation Between Redwood Systematic and Vanguard
Can any of the company-specific risk be diversified away by investing in both Redwood Systematic and Vanguard 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 Vanguard 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 Vanguard Sp Small Cap, you can compare the effects of market volatilities on Redwood Systematic and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Systematic and Vanguard.
Diversification Opportunities for Redwood Systematic and Vanguard
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Redwood and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro and Vanguard Sp Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sp Small 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sp Small has no effect on the direction of Redwood Systematic i.e., Redwood Systematic and Vanguard go up and down completely randomly.
Pair Corralation between Redwood Systematic and Vanguard
Assuming the 90 days horizon Redwood Systematic is expected to generate 1.8 times less return on investment than Vanguard. But when comparing it to its historical volatility, Redwood Systematic Macro is 1.9 times less risky than Vanguard. It trades about 0.25 of its potential returns per unit of risk. Vanguard Sp Small Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 38,620 in Vanguard Sp Small Cap on August 30, 2024 and sell it today you would earn a total of 3,481 from holding Vanguard Sp Small Cap or generate 9.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Redwood Systematic Macro vs. Vanguard Sp Small Cap
Performance |
| Timeline |
| Redwood Systematic Macro |
| Vanguard Sp Small |
Redwood Systematic and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Redwood Systematic and Vanguard
The main advantage of trading using opposite Redwood Systematic and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Systematic position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.| Redwood Systematic vs. Western Asset Diversified | Redwood Systematic vs. Pioneer Diversified High | Redwood Systematic vs. Adams Diversified Equity | Redwood Systematic vs. Massmutual Premier Diversified |
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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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