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 Aggregate and iShares Russell 2000, 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

-0.02

Correlation Coefficient

IShares Core  IShares Russell

Good diversification

The 3 months correlation between IShares and IShares is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Aggregate and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 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 Aggregate 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 2000 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 Aggregate is expected to generate 0.27 times more return on investment than IShares Russell. However, iShares Core Aggregate is 3.75 times less risky than IShares Russell. It trades about -0.01 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about -0.1 per unit of risk. If you would invest  9,697  in iShares Core Aggregate on October 7, 2024 and sell it today you would lose (16.00) from holding iShares Core Aggregate or give up 0.16% of portfolio value over 90 days.

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

iShares Core Aggregate  vs.  iShares Russell 2000

iShares Core Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Russell 2000

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 3 (%) 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.

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 Aggregate and iShares Russell 2000 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.