Correlation Between IShares Select and Russell Equity

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

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

Diversification Opportunities for IShares Select and Russell Equity

0.71

Correlation Coefficient

IShares Select  Russell Equity

Poor diversification

The 3 months correlation between IShares and Russell is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares Select Dividend and Russell Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell Equity Income and IShares Select 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 iShares Select Dividend are associated (or correlated) with Russell Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell Equity Income has no effect on the direction of IShares Select i.e., IShares Select and Russell Equity go up and down completely randomly.

Pair Corralation between IShares Select and Russell Equity

Considering the 90-day investment horizon iShares Select Dividend is expected to generate 1.17 times more return on investment than Russell Equity. However, IShares Select is 1.17 times more volatile than Russell Equity Income. It trades about 0.19 of its potential returns per unit of risk. Russell Equity Income is currently generating about 0.13 per unit of risk. If you would invest  13,197  in iShares Select Dividend on September 2, 2024 and sell it today you would earn a total of  1,144  from holding iShares Select Dividend or generate 8.67% return on investment over 90 days.

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

iShares Select Dividend  vs.  Russell Equity Income

iShares Select Dividend

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Select Dividend are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Russell Equity Income

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Russell Equity Income are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Russell Equity is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Select and Russell Equity

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

The idea behind iShares Select Dividend and Russell Equity Income 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.