Correlation Between MicroSectors FANG and IShares Russell

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

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

Diversification Opportunities for MicroSectors FANG and IShares Russell

-0.33

Correlation Coefficient

MicroSectors FANG  IShares Russell

Very good diversification

The 3 months correlation between MicroSectors and IShares is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid and MicroSectors FANG 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 MicroSectors FANG Index 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 Mid has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and IShares Russell go up and down completely randomly.

Pair Corralation between MicroSectors FANG and IShares Russell

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the IShares Russell. In addition to that, MicroSectors FANG is 5.23 times more volatile than iShares Russell Mid Cap. It trades about -0.12 of its total potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.06 per unit of volatility. If you would invest  6,963  in iShares Russell Mid Cap on October 14, 2024 and sell it today you would earn a total of  1,801  from holding iShares Russell Mid Cap or generate 25.87% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  iShares Russell Mid Cap

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

iShares Russell Mid

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with MicroSectors FANG and IShares Russell

The main advantage of trading using opposite MicroSectors FANG and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 MicroSectors FANG Index and iShares Russell Mid Cap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.