Correlation Between IShares Russell and IShares Short

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

Diversification Opportunities for IShares Russell and IShares Short

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between IShares and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding IShares Russell 2000 and IShares Short Maturity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares Short Maturity 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares Short Maturity has no effect on the direction of IShares Russell i.e., IShares Russell and IShares Short go up and down completely randomly.

Pair Corralation between IShares Russell and IShares Short

Considering the 90-day investment horizon IShares Russell 2000 is expected to generate 5.27 times more return on investment than IShares Short. However, IShares Russell is 5.27 times more volatile than IShares Short Maturity. It trades about 0.12 of its potential returns per unit of risk. IShares Short Maturity is currently generating about 0.11 per unit of risk. If you would invest  17,299  in IShares Russell 2000 on December 29, 2023 and sell it today you would earn a total of  3,665  from holding IShares Russell 2000 or generate 21.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.4%
ValuesDaily Returns

IShares Russell 2000  vs.  IShares Short Maturity

 Performance 
       Timeline  
IShares Russell 2000 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in IShares Russell 2000 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
IShares Short Maturity 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in IShares Short Maturity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Short is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

IShares Russell and IShares Short Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Russell and IShares Short

The main advantage of trading using opposite IShares Russell and IShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell position performs unexpectedly, IShares Short 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 Short will offset losses from the drop in IShares Short's long position.
The idea behind IShares Russell 2000 and IShares Short Maturity 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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