Correlation Between SPDR Dow and IShares Russell

Can any of the company-specific risk be diversified away by investing in both SPDR Dow and IShares Russell 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 SPDR Dow and IShares Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR Dow Jones and iShares Russell 2000, you can compare the effects of market volatilities on SPDR Dow and IShares Russell 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 SPDR Dow with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and IShares Russell.

Diversification Opportunities for SPDR Dow and IShares Russell

0.95

Correlation Coefficient

SPDR Dow  IShares Russell

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 and SPDR Dow 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 SPDR Dow Jones are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares Russell go up and down completely randomly.

Pair Corralation between SPDR Dow and IShares Russell

Considering the 90-day investment horizon SPDR Dow is expected to generate 1.26 times less return on investment than IShares Russell. But when comparing it to its historical volatility, SPDR Dow Jones is 1.72 times less risky than IShares Russell. It trades about 0.16 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  21,933  in iShares Russell 2000 on August 30, 2024 and sell it today you would earn a total of  2,162  from holding iShares Russell 2000 or generate 9.86% return on investment over 90 days.

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

SPDR Dow Jones  vs.  iShares Russell 2000

SPDR Dow Jones

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating forward indicators, SPDR Dow may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares Russell 2000

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with SPDR Dow and IShares Russell

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

The idea behind SPDR Dow Jones and iShares Russell 2000 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.