Correlation Between IShares Russell and Pacer Nasdaq

Can any of the company-specific risk be diversified away by investing in both IShares Russell and Pacer Nasdaq 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 Pacer Nasdaq 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 Pacer Nasdaq 100, you can compare the effects of market volatilities on IShares Russell and Pacer Nasdaq 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 Pacer Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Pacer Nasdaq.

Diversification Opportunities for IShares Russell and Pacer Nasdaq

0.96

Correlation Coefficient

IShares Russell  Pacer Nasdaq

Almost no diversification

The 3 months correlation between IShares and Pacer is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and Pacer Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Nasdaq 100 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 Pacer Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Nasdaq 100 has no effect on the direction of IShares Russell i.e., IShares Russell and Pacer Nasdaq go up and down completely randomly.

Pair Corralation between IShares Russell and Pacer Nasdaq

Considering the 90-day investment horizon iShares Russell 1000 is expected to generate 0.88 times more return on investment than Pacer Nasdaq. However, iShares Russell 1000 is 1.13 times less risky than Pacer Nasdaq. It trades about 0.19 of its potential returns per unit of risk. Pacer Nasdaq 100 is currently generating about 0.13 per unit of risk. If you would invest  35,426  in iShares Russell 1000 on September 2, 2024 and sell it today you would earn a total of  4,412  from holding iShares Russell 1000 or generate 12.45% return on investment over 90 days.

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

iShares Russell 1000  vs.  Pacer Nasdaq 100

iShares Russell 1000

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pacer Nasdaq 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Nasdaq 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pacer Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Russell and Pacer Nasdaq

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

The idea behind iShares Russell 1000 and Pacer Nasdaq 100 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.