Correlation Between Redwood Systematic and Meridian Growth

Can any of the company-specific risk be diversified away by investing in both Redwood Systematic and Meridian Growth 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 Meridian Growth 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 Meridian Growth Fund, you can compare the effects of market volatilities on Redwood Systematic and Meridian Growth 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 Meridian Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Redwood Systematic and Meridian Growth.

Diversification Opportunities for Redwood Systematic and Meridian Growth

0.91

Correlation Coefficient

Redwood Systematic  Meridian Growth

Almost no diversification

The 3 months correlation between Redwood and Meridian is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Systematic Macro and Meridian Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Growth 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 Meridian Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Growth has no effect on the direction of Redwood Systematic i.e., Redwood Systematic and Meridian Growth go up and down completely randomly.

Pair Corralation between Redwood Systematic and Meridian Growth

Assuming the 90 days horizon Redwood Systematic is expected to generate 1.17 times less return on investment than Meridian Growth. But when comparing it to its historical volatility, Redwood Systematic Macro is 1.29 times less risky than Meridian Growth. It trades about 0.16 of its potential returns per unit of risk. Meridian Growth Fund is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,566  in Meridian Growth Fund on September 3, 2024 and sell it today you would earn a total of  324.00  from holding Meridian Growth Fund or generate 9.09% return on investment over 90 days.

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

Redwood Systematic Macro  vs.  Meridian Growth Fund

Redwood Systematic Macro

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Systematic Macro are ranked lower than 12 (%) 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.

Meridian Growth

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Growth Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Meridian Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Redwood Systematic and Meridian Growth

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

The idea behind Redwood Systematic Macro and Meridian Growth Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.