Correlation Between IShares SP and IShares Russell

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

By analyzing existing cross correlation between iShares SP Mid Cap and iShares Russell 3000, you can compare the effects of market volatilities on IShares SP 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 IShares SP with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and IShares Russell.

Diversification Opportunities for IShares SP and IShares Russell

0.96

Correlation Coefficient

IShares SP  IShares Russell

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and iShares Russell 3000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 3000 and IShares SP 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 SP Mid Cap 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 3000 has no effect on the direction of IShares SP i.e., IShares SP and IShares Russell go up and down completely randomly.

Pair Corralation between IShares SP and IShares Russell

Considering the 90-day investment horizon iShares SP Mid Cap is expected to generate 1.27 times more return on investment than IShares Russell. However, IShares SP is 1.27 times more volatile than iShares Russell 3000. It trades about 0.13 of its potential returns per unit of risk. iShares Russell 3000 is currently generating about 0.15 per unit of risk. If you would invest  9,087  in iShares SP Mid Cap on August 30, 2024 and sell it today you would earn a total of  770.00  from holding iShares SP Mid Cap or generate 8.47% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  iShares Russell 3000

iShares SP Mid

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares Russell 3000

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 3000 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly 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 IShares SP and IShares Russell

The main advantage of trading using opposite IShares SP and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 iShares SP Mid Cap and iShares Russell 3000 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.