Correlation Between IShares Russell and KFA Value

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

By analyzing existing cross correlation between iShares Russell 1000 and KFA Value Line, you can compare the effects of market volatilities on IShares Russell and KFA Value 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 Russell with a short position of KFA Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and KFA Value.

Diversification Opportunities for IShares Russell and KFA Value

0.81

Correlation Coefficient

IShares Russell  KFA Value

Very poor diversification

The 3 months correlation between IShares and KFA is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and KFA Value Line in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFA Value Line and IShares Russell 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 Russell 1000 are associated (or correlated) with KFA Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFA Value Line has no effect on the direction of IShares Russell i.e., IShares Russell and KFA Value go up and down completely randomly.

Pair Corralation between IShares Russell and KFA Value

Considering the 90-day investment horizon IShares Russell is expected to generate 1.44 times less return on investment than KFA Value. In addition to that, IShares Russell is 1.06 times more volatile than KFA Value Line. It trades about 0.19 of its total potential returns per unit of risk. KFA Value Line is currently generating about 0.29 per unit of volatility. If you would invest  2,513  in KFA Value Line on September 2, 2024 and sell it today you would earn a total of  298.00  from holding KFA Value Line or generate 11.86% return on investment over 90 days.

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

iShares Russell 1000  vs.  KFA Value Line

iShares Russell 1000

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KFA Value Line

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days KFA Value Line has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak essential indicators, KFA Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Russell and KFA Value

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

The idea behind iShares Russell 1000 and KFA Value Line 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 Anywhere module to track or share privately all of your investments from the convenience of any device.