Correlation Between IShares Russell and IShares SP

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

Diversification Opportunities for IShares Russell and IShares SP

0.98

Correlation Coefficient

IShares Russell  IShares SP

Almost no diversification

The 3 months correlation between IShares and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of IShares Russell i.e., IShares Russell and IShares SP go up and down completely randomly.

Pair Corralation between IShares Russell and IShares SP

Considering the 90-day investment horizon iShares Russell 2000 is expected to under-perform the IShares SP. In addition to that, IShares Russell is 1.0 times more volatile than iShares SP Small Cap. It trades about -0.01 of its total potential returns per unit of risk. iShares SP Small Cap is currently generating about 0.03 per unit of volatility. If you would invest  10,659  in iShares SP Small Cap on September 23, 2024 and sell it today you would earn a total of  227.00  from holding iShares SP Small Cap or generate 2.13% 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.  iShares SP Small Cap

iShares Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares SP Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Russell and IShares SP

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

The idea behind iShares Russell 2000 and iShares SP Small Cap 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.