Correlation Between IShares Russell and Litman Gregory

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

By analyzing existing cross correlation between iShares Russell 1000 and Litman Gregory Funds, you can compare the effects of market volatilities on IShares Russell and Litman Gregory 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 Russell with a short position of Litman Gregory. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Litman Gregory.

Diversification Opportunities for IShares Russell and Litman Gregory

0.88

Correlation Coefficient

IShares Russell  Litman Gregory

Very poor diversification

The 3 months correlation between IShares and Litman is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and Litman Gregory Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Funds and IShares Russell 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 Russell 1000 are associated (or correlated) with Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Funds has no effect on the direction of IShares Russell i.e., IShares Russell and Litman Gregory go up and down completely randomly.

Pair Corralation between IShares Russell and Litman Gregory

Considering the 90-day investment horizon IShares Russell is expected to generate 2.07 times less return on investment than Litman Gregory. In addition to that, IShares Russell is 1.08 times more volatile than Litman Gregory Funds. It trades about 0.03 of its total potential returns per unit of risk. Litman Gregory Funds is currently generating about 0.07 per unit of volatility. If you would invest  1,142  in Litman Gregory Funds on December 28, 2024 and sell it today you would earn a total of  34.00  from holding Litman Gregory Funds or generate 2.98% return on investment over 90 days.

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

iShares Russell 1000  vs.  Litman Gregory Funds

iShares Russell 1000

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Litman Gregory Funds

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Funds are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Russell and Litman Gregory

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

The idea behind iShares Russell 1000 and Litman Gregory Funds 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.