Correlation Between Technology Fund and Russell 2000

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

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

Diversification Opportunities for Technology Fund and Russell 2000

0.8

Correlation Coefficient

Technology Fund  Russell 2000

Very poor diversification

The 3 months correlation between Technology and Russell is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Technology Fund Investor and Russell 2000 Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 and Technology Fund 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 Technology Fund Investor are associated (or correlated) with Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 has no effect on the direction of Technology Fund i.e., Technology Fund and Russell 2000 go up and down completely randomly.

Pair Corralation between Technology Fund and Russell 2000

Assuming the 90 days horizon Technology Fund Investor is expected to generate 1.05 times more return on investment than Russell 2000. However, Technology Fund is 1.05 times more volatile than Russell 2000 Fund. It trades about 0.1 of its potential returns per unit of risk. Russell 2000 Fund is currently generating about 0.05 per unit of risk. If you would invest  11,645  in Technology Fund Investor on September 14, 2024 and sell it today you would earn a total of  9,812  from holding Technology Fund Investor or generate 84.26% return on investment over 90 days.

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

Technology Fund Investor  vs.  Russell 2000 Fund

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.

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.

Pair Trading with Technology Fund and Russell 2000

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

The idea behind Technology Fund Investor and Russell 2000 Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.