Correlation Between South West and Redwood Managed

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

By analyzing existing cross correlation between South West Pinnacle and Redwood Managed Volatility, you can compare the effects of market volatilities on South West and Redwood Managed 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 South West with a short position of Redwood Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of South West and Redwood Managed.

Diversification Opportunities for South West and Redwood Managed

-0.72

Correlation Coefficient

South West  Redwood Managed

Pay attention - limited upside

The 3 months correlation between South and Redwood is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding South West Pinnacle and Redwood Managed Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Managed Vola and South West 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 South West Pinnacle are associated (or correlated) with Redwood Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Managed Vola has no effect on the direction of South West i.e., South West and Redwood Managed go up and down completely randomly.

Pair Corralation between South West and Redwood Managed

Assuming the 90 days trading horizon South West Pinnacle is expected to under-perform the Redwood Managed. In addition to that, South West is 10.38 times more volatile than Redwood Managed Volatility. It trades about -0.08 of its total potential returns per unit of risk. Redwood Managed Volatility is currently generating about 0.09 per unit of volatility. If you would invest  1,108  in Redwood Managed Volatility on February 7, 2024 and sell it today you would earn a total of  6.00  from holding Redwood Managed Volatility or generate 0.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	81.82%
Values	Daily Returns

South West Pinnacle  vs.  Redwood Managed Volatility

South West Pinnacle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South West Pinnacle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Redwood Managed Vola

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Managed Volatility are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Redwood Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with South West and Redwood Managed

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

The idea behind South West Pinnacle and Redwood Managed Volatility 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.