Correlation Between Dynex Capital and Redwood Trust

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

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

Diversification Opportunities for Dynex Capital and Redwood Trust

0.77

Correlation Coefficient

Dynex Capital  Redwood Trust

Poor diversification

The 3 months correlation between Dynex and Redwood is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dynex Capital and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and Dynex Capital 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 Dynex Capital are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Dynex Capital i.e., Dynex Capital and Redwood Trust go up and down completely randomly.

Pair Corralation between Dynex Capital and Redwood Trust

Allowing for the 90-day total investment horizon Dynex Capital is expected to generate 0.54 times more return on investment than Redwood Trust. However, Dynex Capital is 1.84 times less risky than Redwood Trust. It trades about 0.13 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.01 per unit of risk. If you would invest  1,162  in Dynex Capital on May 6, 2025 and sell it today you would earn a total of  95.00  from holding Dynex Capital or generate 8.18% return on investment over 90 days.

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

Dynex Capital  vs.  Redwood Trust

Dynex Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Dynex Capital may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Redwood Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Redwood Trust is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dynex Capital and Redwood Trust

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

The idea behind Dynex Capital and Redwood Trust 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.