Correlation Between IShares Russell and JPMorgan BetaBuilders

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

By analyzing existing cross correlation between iShares Russell 2000 and JPMorgan BetaBuilders Small, you can compare the effects of market volatilities on IShares Russell and JPMorgan BetaBuilders 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 JPMorgan BetaBuilders. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and JPMorgan BetaBuilders.

Diversification Opportunities for IShares Russell and JPMorgan BetaBuilders

1.0

Correlation Coefficient

IShares Russell  JPMorgan BetaBuilders

No risk reduction

The 3 months correlation between IShares and JPMorgan is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and JPMorgan BetaBuilders Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan BetaBuilders 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 2000 are associated (or correlated) with JPMorgan BetaBuilders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan BetaBuilders has no effect on the direction of IShares Russell i.e., IShares Russell and JPMorgan BetaBuilders go up and down completely randomly.

Pair Corralation between IShares Russell and JPMorgan BetaBuilders

Considering the 90-day investment horizon IShares Russell is expected to generate 1.13 times less return on investment than JPMorgan BetaBuilders. But when comparing it to its historical volatility, iShares Russell 2000 is 1.04 times less risky than JPMorgan BetaBuilders. It trades about 0.17 of its potential returns per unit of risk. JPMorgan BetaBuilders Small is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,443  in JPMorgan BetaBuilders Small on September 2, 2024 and sell it today you would earn a total of  1,011  from holding JPMorgan BetaBuilders Small or generate 15.69% 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 2000  vs.  JPMorgan BetaBuilders Small

iShares Russell 2000

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

JPMorgan BetaBuilders

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan BetaBuilders Small are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JPMorgan BetaBuilders exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Russell and JPMorgan BetaBuilders

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

The idea behind iShares Russell 2000 and JPMorgan BetaBuilders Small 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..