Correlation Between Redwood Systematic and Federated Hermes

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

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

Diversification Opportunities for Redwood Systematic and Federated Hermes

0.74

Correlation Coefficient

Redwood Systematic  Federated Hermes

Poor diversification

The 3 months correlation between Redwood and Federated is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro and Federated Hermes Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Con and Redwood Systematic 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 Redwood Systematic Macro are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Con has no effect on the direction of Redwood Systematic i.e., Redwood Systematic and Federated Hermes go up and down completely randomly.

Pair Corralation between Redwood Systematic and Federated Hermes

Assuming the 90 days horizon Redwood Systematic Macro is expected to generate 8.67 times more return on investment than Federated Hermes. However, Redwood Systematic is 8.67 times more volatile than Federated Hermes Conservative. It trades about 0.17 of its potential returns per unit of risk. Federated Hermes Conservative is currently generating about 0.17 per unit of risk. If you would invest  1,836  in Redwood Systematic Macro on September 2, 2024 and sell it today you would earn a total of  150.00  from holding Redwood Systematic Macro or generate 8.17% return on investment over 90 days.

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

Redwood Systematic Macro  vs.  Federated Hermes Conservative

Redwood Systematic Macro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Systematic Macro are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Redwood Systematic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Redwood Systematic and Federated Hermes

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

The idea behind Redwood Systematic Macro and Federated Hermes Conservative 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.