Correlation Between Rational Defensive and Russell 2000

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

By analyzing existing cross correlation between Rational Defensive Growth and Russell 2000 15x, you can compare the effects of market volatilities on Rational Defensive 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 Rational Defensive with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Russell 2000.

Diversification Opportunities for Rational Defensive and Russell 2000

0.9

Correlation Coefficient

Rational Defensive  Russell 2000

Almost no diversification

The 3 months correlation between Rational and Russell is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Russell 2000 15x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 15x and Rational Defensive 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 Rational Defensive Growth 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 15x has no effect on the direction of Rational Defensive i.e., Rational Defensive and Russell 2000 go up and down completely randomly.

Pair Corralation between Rational Defensive and Russell 2000

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 0.71 times more return on investment than Russell 2000. However, Rational Defensive Growth is 1.4 times less risky than Russell 2000. It trades about -0.1 of its potential returns per unit of risk. Russell 2000 15x is currently generating about -0.12 per unit of risk. If you would invest  4,043  in Rational Defensive Growth on December 23, 2024 and sell it today you would lose (324.00) from holding Rational Defensive Growth or give up 8.01% of portfolio value over 90 days.

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

Rational Defensive Growth  vs.  Russell 2000 15x

Rational Defensive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Defensive Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Russell 2000 15x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Russell 2000 15x has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Rational Defensive and Russell 2000

The main advantage of trading using opposite Rational Defensive and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive 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 Rational Defensive Growth and Russell 2000 15x 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.