Correlation Between Small Cap and Redwood Systematic
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Redwood Systematic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Redwood Systematic Macro, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Redwood Systematic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Redwood Systematic.
Diversification Opportunities for Small Cap and Redwood Systematic
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Redwood is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core 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 Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and Redwood Systematic go up and down completely randomly.
Pair Corralation between Small Cap and Redwood Systematic
Assuming the 90 days horizon Small Cap Core is expected to generate 1.99 times more return on investment than Redwood Systematic. However, Small Cap is 1.99 times more volatile than Redwood Systematic Macro. It trades about 0.26 of its potential returns per unit of risk. Redwood Systematic Macro is currently generating about 0.32 per unit of risk. If you would invest 1,368 in Small Cap Core on September 1, 2024 and sell it today you would earn a total of 130.00 from holding Small Cap Core or generate 9.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Small Cap Core vs. Redwood Systematic Macro
Performance |
| Timeline |
| Small Cap Core |
| Redwood Systematic Macro |
Small Cap and Redwood Systematic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Redwood Systematic
The main advantage of trading using opposite Small Cap and Redwood Systematic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Calamos Global Equity | Small Cap vs. Huber Capital Equity | Small Cap vs. Ab Select Equity | Small Cap vs. Rbc Global Equity |
| Redwood Systematic vs. Redwood Managed Volatility | Redwood Systematic vs. Redwood Managed Volatility | Redwood Systematic vs. Redwood Managed Volatility | Redwood Systematic vs. Redwood Alphafactor Tactical |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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