Correlation Between IShares Core and IShares Russell

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

By analyzing existing cross correlation between iShares Core SP and iShares Russell 2500, you can compare the effects of market volatilities on IShares Core and IShares Russell 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 Core with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and IShares Russell.

Diversification Opportunities for IShares Core and IShares Russell

0.78

Correlation Coefficient

IShares Core  IShares Russell

Poor diversification

The 3 months correlation between IShares and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and iShares Russell 2500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2500 and IShares Core 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 Core SP are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2500 has no effect on the direction of IShares Core i.e., IShares Core and IShares Russell go up and down completely randomly.

Pair Corralation between IShares Core and IShares Russell

Considering the 90-day investment horizon iShares Core SP is expected to generate 1.12 times more return on investment than IShares Russell. However, IShares Core is 1.12 times more volatile than iShares Russell 2500. It trades about -0.05 of its potential returns per unit of risk. iShares Russell 2500 is currently generating about -0.15 per unit of risk. If you would invest  10,754  in iShares Core SP on January 25, 2024 and sell it today you would lose (158.00) from holding iShares Core SP or give up 1.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

iShares Core SP  vs.  iShares Russell 2500

iShares Core SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, IShares Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

iShares Russell 2500

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2500 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, IShares Russell is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and IShares Russell

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

The idea behind iShares Core SP and iShares Russell 2500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.