Correlation Between Russell 2000 and Sp Smallcap

Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Sp Smallcap 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 Sp Smallcap 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 Sp Smallcap 600, you can compare the effects of market volatilities on Russell 2000 and Sp Smallcap 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 Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Sp Smallcap.

Diversification Opportunities for Russell 2000 and Sp Smallcap

0.87

Correlation Coefficient

Russell 2000  Sp Smallcap

Very poor diversification

The 3 months correlation between Russell and RYWAX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 Fund and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 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 Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Russell 2000 i.e., Russell 2000 and Sp Smallcap go up and down completely randomly.

Pair Corralation between Russell 2000 and Sp Smallcap

Assuming the 90 days horizon Russell 2000 Fund is expected to generate 0.85 times more return on investment than Sp Smallcap. However, Russell 2000 Fund is 1.18 times less risky than Sp Smallcap. It trades about 0.09 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.02 per unit of risk. If you would invest  4,916  in Russell 2000 Fund on September 15, 2024 and sell it today you would earn a total of  731.00  from holding Russell 2000 Fund or generate 14.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Russell 2000 Fund  vs.  Sp Smallcap 600

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.

Sp Smallcap 600

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sp Smallcap 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sp Smallcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Russell 2000 and Sp Smallcap

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

The idea behind Russell 2000 Fund and Sp Smallcap 600 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.