Correlation Between Russell 2000 and Technology Fund

Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Technology Fund 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 Russell 2000 and Technology Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Russell 2000 Fund and Technology Fund Investor, you can compare the effects of market volatilities on Russell 2000 and Technology Fund 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 Russell 2000 with a short position of Technology Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Technology Fund.

Diversification Opportunities for Russell 2000 and Technology Fund

0.91

Correlation Coefficient

Russell 2000  Technology Fund

Almost no diversification

The 3 months correlation between Russell and Technology is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 Fund and Technology Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Fund Investor and Russell 2000 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 Russell 2000 Fund are associated (or correlated) with Technology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Fund Investor has no effect on the direction of Russell 2000 i.e., Russell 2000 and Technology Fund go up and down completely randomly.

Pair Corralation between Russell 2000 and Technology Fund

Assuming the 90 days horizon Russell 2000 is expected to generate 1.55 times less return on investment than Technology Fund. But when comparing it to its historical volatility, Russell 2000 Fund is 1.05 times less risky than Technology Fund. It trades about 0.08 of its potential returns per unit of risk. Technology Fund Investor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  19,574  in Technology Fund Investor on September 15, 2024 and sell it today you would earn a total of  1,883  from holding Technology Fund Investor or generate 9.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Russell 2000 Fund  vs.  Technology Fund Investor

Russell 2000

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Russell 2000 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Technology Fund Investor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Fund Investor are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Technology Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Russell 2000 and Technology Fund

The main advantage of trading using opposite Russell 2000 and Technology Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Technology Fund 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 Technology Fund will offset losses from the drop in Technology Fund's long position.

The idea behind Russell 2000 Fund and Technology Fund Investor 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.

Check out your portfolio center.

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..