Correlation Between SP Smallcap and Russell 2000

By analyzing existing cross correlation between SP Smallcap 600 and Russell 2000 Growth, you can compare the effects of market volatilities on SP 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 SP Smallcap with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Smallcap and Russell 2000.

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

Diversification Opportunities for SP Smallcap and Russell 2000

0.76
  Correlation Coefficient
SP Smallcap 600
Russell 2000 Growth

Poor diversification

The 3 months correlation between SP Smallcap and Russell is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding SP Smallcap 600 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 SP 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 SP Smallcap 600 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 SP Smallcap i.e., SP Smallcap and Russell 2000 go up and down completely randomly.

Pair Corralation between SP Smallcap and Russell 2000

Given the investment horizon of 90 days SP Smallcap 600 is expected to generate 0.83 times more return on investment than Russell 2000. However, SP Smallcap 600 is 1.21 times less risky than Russell 2000. It trades about 0.04 of its potential returns per unit of risk. Russell 2000 Growth is currently generating about -0.15 per unit of risk. If you would invest  22,828  in SP Smallcap 600 on October 18, 2021 and sell it today you would earn a total of  178.00  from holding SP Smallcap 600 or generate 0.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SP Smallcap 600  vs.  Russell 2000 Growth

 Performance (%) 
      Timeline 
SP Smallcap 600 
SP Smallcap Performance
0 of 100
Over the last 90 days SP Smallcap 600 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SP Smallcap is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SP 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

SP Smallcap and Russell 2000 Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with SP Smallcap and Russell 2000

The main advantage of trading using opposite SP Smallcap and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 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.
The idea behind SP Smallcap 600 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.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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