Correlation Between DWA Smallcap and Russell 2000

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

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

Diversification Opportunities for DWA Smallcap and Russell 2000

0.98
  Correlation Coefficient
DWA Smallcap Momentum
Russell 2000 Growth

Almost no diversification

The 3 months correlation between DWA Smallcap and Russell is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding DWA Smallcap Momentum and Russell 2000 Growth in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 Growth and DWA Smallcap 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 DWA Smallcap Momentum 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 Growth has no effect on the direction of DWA Smallcap i.e., DWA Smallcap and Russell 2000 go up and down completely randomly.

Pair Corralation between DWA Smallcap and Russell 2000

Given the investment horizon of 90 days DWA Smallcap Momentum is expected to generate 1.07 times more return on investment than Russell 2000. However, DWA Smallcap is 1.07 times more volatile than Russell 2000 Growth. It trades about -0.15 of its potential returns per unit of risk. Russell 2000 Growth is currently generating about -0.21 per unit of risk. If you would invest  9,616  in DWA Smallcap Momentum on October 19, 2021 and sell it today you would lose (1,084)  from holding DWA Smallcap Momentum or give up 11.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

DWA Smallcap Momentum  vs.  Russell 2000 Growth

 Performance (%) 
      Timeline 
DWA Smallcap Momentum 
DWA Smallcap Performance
0 of 100
Over the last 90 days DWA Smallcap Momentum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

DWA Smallcap Price Channel

Russell 2000 Growth 
Russell Performance
0 of 100
Over the last 90 days Russell 2000 Growth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Russell Price Channel

DWA Smallcap and Russell 2000 Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with DWA Smallcap and Russell 2000

The main advantage of trading using opposite DWA Smallcap and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DWA Smallcap 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.

DWA Smallcap Momentum

Pair trading matchups for DWA Smallcap

The idea behind DWA Smallcap Momentum and Russell 2000 Growth 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.

Russell 2000 Growth

Pair trading matchups for Russell 2000

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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