Correlation Between IShares Russell and SPDR Dow

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

By analyzing existing cross correlation between iShares Russell 2000 and SPDR Dow Jones, you can compare the effects of market volatilities on IShares Russell and SPDR Dow 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 SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and SPDR Dow.

Diversification Opportunities for IShares Russell and SPDR Dow

0.96

Correlation Coefficient

IShares Russell  SPDR Dow

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 2000 are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares Russell i.e., IShares Russell and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares Russell and SPDR Dow

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.67 times more return on investment than SPDR Dow. However, IShares Russell is 1.67 times more volatile than SPDR Dow Jones. It trades about 0.11 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.13 per unit of risk. If you would invest  21,687  in iShares Russell 2000 on September 14, 2024 and sell it today you would earn a total of  1,781  from holding iShares Russell 2000 or generate 8.21% return on investment over 90 days.

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

iShares Russell 2000  vs.  SPDR Dow Jones

iShares Russell 2000

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR Dow Jones

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, SPDR Dow is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Russell and SPDR Dow

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

The idea behind iShares Russell 2000 and SPDR Dow Jones 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.