Correlation Between Aam Select and Inverse Russell

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

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

Diversification Opportunities for Aam Select and Inverse Russell

-0.13

Correlation Coefficient

Aam Select  Inverse Russell

Good diversification

The 3 months correlation between Aam and Inverse is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Aam Select Income and Inverse Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Russell 2000 and Aam Select 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 Aam Select Income are associated (or correlated) with Inverse Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Russell 2000 has no effect on the direction of Aam Select i.e., Aam Select and Inverse Russell go up and down completely randomly.

Pair Corralation between Aam Select and Inverse Russell

Assuming the 90 days horizon Aam Select Income is expected to under-perform the Inverse Russell. But the mutual fund apears to be less risky and, when comparing its historical volatility, Aam Select Income is 3.37 times less risky than Inverse Russell. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Inverse Russell 2000 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,208  in Inverse Russell 2000 on October 7, 2024 and sell it today you would earn a total of  260.00  from holding Inverse Russell 2000 or generate 6.18% return on investment over 90 days.

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

Aam Select Income  vs.  Inverse Russell 2000

Aam Select Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aam Select Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Aam Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Russell 2000 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Inverse Russell is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aam Select and Inverse Russell

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

The idea behind Aam Select Income and Inverse 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.