Correlation Between Red Oak and Sp 500

Can any of the company-specific risk be diversified away by investing in both Red Oak and Sp 500 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 Red Oak and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Red Oak Technology and Sp 500 2x, you can compare the effects of market volatilities on Red Oak and Sp 500 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 Red Oak with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Oak and Sp 500.

Diversification Opportunities for Red Oak and Sp 500

0.86

Correlation Coefficient

Red Oak  Sp 500

Very poor diversification

The 3 months correlation between Red and RYTNX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Red Oak Technology and Sp 500 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 2x and Red Oak 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 Red Oak Technology are associated (or correlated) with Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 2x has no effect on the direction of Red Oak i.e., Red Oak and Sp 500 go up and down completely randomly.

Pair Corralation between Red Oak and Sp 500

Assuming the 90 days horizon Red Oak is expected to generate 1.28 times less return on investment than Sp 500. But when comparing it to its historical volatility, Red Oak Technology is 1.43 times less risky than Sp 500. It trades about 0.1 of its potential returns per unit of risk. Sp 500 2x is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  31,806  in Sp 500 2x on September 14, 2024 and sell it today you would earn a total of  2,601  from holding Sp 500 2x or generate 8.18% return on investment over 90 days.

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

Red Oak Technology  vs.  Sp 500 2x

Red Oak Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Oak Technology are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Red Oak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sp 500 2x

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp 500 2x are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Red Oak and Sp 500

The main advantage of trading using opposite Red Oak and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red Oak position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.

The idea behind Red Oak Technology and Sp 500 2x 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.