Correlation Between National Fuel and Redwoods Acquisition

Can any of the company-specific risk be diversified away by investing in both National Fuel and Redwoods Acquisition 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 National Fuel and Redwoods Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Fuel Gas and Redwoods Acquisition Corp, you can compare the effects of market volatilities on National Fuel and Redwoods Acquisition 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 National Fuel with a short position of Redwoods Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Fuel and Redwoods Acquisition.

Diversification Opportunities for National Fuel and Redwoods Acquisition

0.31

Correlation Coefficient

National Fuel  Redwoods Acquisition

Weak diversification

The 3 months correlation between National and Redwoods is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding National Fuel Gas and Redwoods Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwoods Acquisition Corp and National Fuel 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 National Fuel Gas are associated (or correlated) with Redwoods Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwoods Acquisition Corp has no effect on the direction of National Fuel i.e., National Fuel and Redwoods Acquisition go up and down completely randomly.

Pair Corralation between National Fuel and Redwoods Acquisition

Considering the 90-day investment horizon National Fuel is expected to generate 3.49 times less return on investment than Redwoods Acquisition. But when comparing it to its historical volatility, National Fuel Gas is 10.31 times less risky than Redwoods Acquisition. It trades about 0.13 of its potential returns per unit of risk. Redwoods Acquisition Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Redwoods Acquisition Corp on March 12, 2024 and sell it today you would lose (2.00) from holding Redwoods Acquisition Corp or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

National Fuel Gas  vs.  Redwoods Acquisition Corp

National Fuel Gas

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Fuel Gas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, National Fuel may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Redwoods Acquisition Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Redwoods Acquisition Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Redwoods Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Fuel and Redwoods Acquisition

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

The idea behind National Fuel Gas and Redwoods Acquisition Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.