Correlation Between Total Return and Redwood Real

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

By analyzing existing cross correlation between Total Return Fund and Redwood Real Estate, you can compare the effects of market volatilities on Total Return and Redwood Real 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 Total Return with a short position of Redwood Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Return and Redwood Real.

Diversification Opportunities for Total Return and Redwood Real

-0.87

Correlation Coefficient

Total Return  Redwood Real

Pay attention - limited upside

The 3 months correlation between Total and Redwood is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Fund and Redwood Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Real Estate and Total Return 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 Total Return Fund are associated (or correlated) with Redwood Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Real Estate has no effect on the direction of Total Return i.e., Total Return and Redwood Real go up and down completely randomly.

Pair Corralation between Total Return and Redwood Real

Assuming the 90 days horizon Total Return Fund is expected to under-perform the Redwood Real. In addition to that, Total Return is 3.12 times more volatile than Redwood Real Estate. It trades about -0.08 of its total potential returns per unit of risk. Redwood Real Estate is currently generating about 0.1 per unit of volatility. If you would invest  2,507  in Redwood Real Estate on September 26, 2024 and sell it today you would earn a total of  11.00  from holding Redwood Real Estate or generate 0.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Total Return Fund  vs.  Redwood Real Estate

Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Redwood Real Estate

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Real Estate are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Redwood Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Total Return and Redwood Real

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

The idea behind Total Return Fund and Redwood Real Estate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.