Correlation Between IShares III and LG Russell

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

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

Diversification Opportunities for IShares III and LG Russell

0.47

Correlation Coefficient

IShares III  LG Russell

Very weak diversification

The 3 months correlation between IShares and RTWO is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding iShares III Public and LG Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Russell 2000 and IShares III 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 III Public are associated (or correlated) with LG Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Russell 2000 has no effect on the direction of IShares III i.e., IShares III and LG Russell go up and down completely randomly.

Pair Corralation between IShares III and LG Russell

Assuming the 90 days trading horizon iShares III Public is expected to under-perform the LG Russell. But the etf apears to be less risky and, when comparing its historical volatility, iShares III Public is 3.41 times less risky than LG Russell. The etf trades about -0.02 of its potential returns per unit of risk. The LG Russell 2000 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,548  in LG Russell 2000 on September 28, 2024 and sell it today you would earn a total of  678.00  from holding LG Russell 2000 or generate 7.1% return on investment over 90 days.

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

iShares III Public  vs.  LG Russell 2000

iShares III Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares III Public has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares III is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

LG Russell 2000

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LG Russell 2000 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LG Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares III and LG Russell

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

The idea behind iShares III Public and LG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.