Correlation Between WisdomTree and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both WisdomTree and Redwood Trust 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 WisdomTree and Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree and Redwood Trust, you can compare the effects of market volatilities on WisdomTree and Redwood Trust 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 WisdomTree with a short position of Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree and Redwood Trust.
Diversification Opportunities for WisdomTree and Redwood Trust
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between WisdomTree and Redwood is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and WisdomTree 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 WisdomTree are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of WisdomTree i.e., WisdomTree and Redwood Trust go up and down completely randomly.
Pair Corralation between WisdomTree and Redwood Trust
Allowing for the 90-day total investment horizon WisdomTree is expected to generate 0.95 times more return on investment than Redwood Trust. However, WisdomTree is 1.05 times less risky than Redwood Trust. It trades about 0.06 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.03 per unit of risk. If you would invest 576.00 in WisdomTree on November 28, 2024 and sell it today you would earn a total of 344.50 from holding WisdomTree or generate 59.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree vs. Redwood Trust
Performance |
| Timeline |
| WisdomTree |
| Redwood Trust |
WisdomTree and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree and Redwood Trust
The main advantage of trading using opposite WisdomTree and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree position performs unexpectedly, Redwood Trust 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 Trust will offset losses from the drop in Redwood Trust's long position.| WisdomTree vs. Invesco Advantage MIT | WisdomTree vs. Invesco Municipal Trust | WisdomTree vs. Invesco California Value | WisdomTree vs. Victory Capital Holdings |
| Redwood Trust vs. Two Harbors Investments | Redwood Trust vs. AG Mortgage Investment | Redwood Trust vs. Invesco Mortgage Capital | Redwood Trust vs. MFA Financial |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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