Correlation Between IShares Core and Russell Australian

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

By analyzing existing cross correlation between iShares Core SP and Russell Australian SemiGovernment, you can compare the effects of market volatilities on IShares Core and Russell Australian 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 Russell Australian. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Russell Australian.

Diversification Opportunities for IShares Core and Russell Australian

0.32

Correlation Coefficient

IShares Core  Russell Australian

Weak diversification

The 3 months correlation between IShares and Russell is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Russell Australian SemiGovernm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell Australian 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 SP are associated (or correlated) with Russell Australian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell Australian has no effect on the direction of IShares Core i.e., IShares Core and Russell Australian go up and down completely randomly.

Pair Corralation between IShares Core and Russell Australian

Assuming the 90 days trading horizon iShares Core SP is expected to generate 2.56 times more return on investment than Russell Australian. However, IShares Core is 2.56 times more volatile than Russell Australian SemiGovernment. It trades about 0.17 of its potential returns per unit of risk. Russell Australian SemiGovernment is currently generating about 0.05 per unit of risk. If you would invest  4,692  in iShares Core SP on October 7, 2024 and sell it today you would earn a total of  1,601  from holding iShares Core SP or generate 34.12% return on investment over 90 days.

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

iShares Core SP  vs.  Russell Australian SemiGovernm

iShares Core SP

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Russell Australian

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Russell Australian SemiGovernment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Russell Australian is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Core and Russell Australian

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

The idea behind iShares Core SP and Russell Australian SemiGovernment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.