Correlation Between Absolute Core and IShares Russell

Can any of the company-specific risk be diversified away by investing in both Absolute 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 Absolute 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 Absolute Core Strategy and iShares Russell 1000, you can compare the effects of market volatilities on Absolute 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 Absolute Core with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Core and IShares Russell.

Diversification Opportunities for Absolute Core and IShares Russell

0.48

Correlation Coefficient

Absolute Core  IShares Russell

Very weak diversification

The 3 months correlation between Absolute and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Core Strategy and iShares Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 and Absolute 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 Absolute Core Strategy 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 1000 has no effect on the direction of Absolute Core i.e., Absolute Core and IShares Russell go up and down completely randomly.

Pair Corralation between Absolute Core and IShares Russell

Given the investment horizon of 90 days Absolute Core is expected to generate 14.79 times less return on investment than IShares Russell. But when comparing it to its historical volatility, Absolute Core Strategy is 1.73 times less risky than IShares Russell. It trades about 0.02 of its potential returns per unit of risk. iShares Russell 1000 is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  36,463  in iShares Russell 1000 on September 12, 2024 and sell it today you would earn a total of  4,435  from holding iShares Russell 1000 or generate 12.16% return on investment over 90 days.

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

Absolute Core Strategy  vs.  iShares Russell 1000

Absolute Core Strategy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Core Strategy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Absolute Core is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

iShares Russell 1000

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Absolute Core and IShares Russell

The main advantage of trading using opposite Absolute Core and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute 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 Absolute Core Strategy and iShares Russell 1000 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.