Correlation Between IShares Micro and IShares Russell

Can any of the company-specific risk be diversified away by investing in both IShares Micro 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 Micro 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 Micro Cap ETF and iShares Russell Mid Cap, you can compare the effects of market volatilities on IShares Micro 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 Micro with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Micro and IShares Russell.

Diversification Opportunities for IShares Micro and IShares Russell

0.9

Correlation Coefficient

IShares Micro  IShares Russell

Almost no diversification

The 3 months correlation between IShares and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Micro Cap ETF 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 IShares Micro 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 Micro Cap ETF 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 IShares Micro i.e., IShares Micro and IShares Russell go up and down completely randomly.

Pair Corralation between IShares Micro and IShares Russell

Considering the 90-day investment horizon iShares Micro Cap ETF is expected to generate 2.0 times more return on investment than IShares Russell. However, IShares Micro is 2.0 times more volatile than iShares Russell Mid Cap. It trades about 0.17 of its potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.21 per unit of risk. If you would invest  11,970  in iShares Micro Cap ETF on September 1, 2024 and sell it today you would earn a total of  1,873  from holding iShares Micro Cap ETF or generate 15.65% return on investment over 90 days.

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

iShares Micro Cap ETF  vs.  iShares Russell Mid Cap

iShares Micro Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Micro Cap ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, IShares Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

iShares Russell Mid

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Micro and IShares Russell

The main advantage of trading using opposite IShares Micro and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Micro 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 Micro Cap ETF 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.