Correlation Between Federated Hermes and Redwood Alphafactor

Can any of the company-specific risk be diversified away by investing in both Federated Hermes and Redwood Alphafactor 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 Federated Hermes and Redwood Alphafactor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federated Hermes Conservative and Redwood Alphafactor Tactical, you can compare the effects of market volatilities on Federated Hermes and Redwood Alphafactor 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 Federated Hermes with a short position of Redwood Alphafactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Hermes and Redwood Alphafactor.

Diversification Opportunities for Federated Hermes and Redwood Alphafactor

-0.12

Correlation Coefficient

Federated Hermes  Redwood Alphafactor

Good diversification

The 3 months correlation between Federated and Redwood is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Federated Hermes Conservative and Redwood Alphafactor Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Alphafactor and Federated Hermes 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 Federated Hermes Conservative are associated (or correlated) with Redwood Alphafactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Alphafactor has no effect on the direction of Federated Hermes i.e., Federated Hermes and Redwood Alphafactor go up and down completely randomly.

Pair Corralation between Federated Hermes and Redwood Alphafactor

Assuming the 90 days horizon Federated Hermes Conservative is expected to generate 0.11 times more return on investment than Redwood Alphafactor. However, Federated Hermes Conservative is 9.15 times less risky than Redwood Alphafactor. It trades about 0.17 of its potential returns per unit of risk. Redwood Alphafactor Tactical is currently generating about -0.03 per unit of risk. If you would invest  992.00  in Federated Hermes Conservative on September 2, 2024 and sell it today you would earn a total of  9.00  from holding Federated Hermes Conservative or generate 0.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Federated Hermes Conservative  vs.  Redwood Alphafactor Tactical

Federated Hermes Con

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Hermes Conservative are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Hermes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Redwood Alphafactor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redwood Alphafactor Tactical has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Redwood Alphafactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federated Hermes and Redwood Alphafactor

The main advantage of trading using opposite Federated Hermes and Redwood Alphafactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Hermes position performs unexpectedly, Redwood Alphafactor 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 Alphafactor will offset losses from the drop in Redwood Alphafactor's long position.

The idea behind Federated Hermes Conservative and Redwood Alphafactor Tactical 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.