Correlation Between IShares Russell and AdvisorShares

Can any of the company-specific risk be diversified away by investing in both IShares Russell and AdvisorShares 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 AdvisorShares 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 AdvisorShares, you can compare the effects of market volatilities on IShares Russell and AdvisorShares 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 AdvisorShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and AdvisorShares.

Diversification Opportunities for IShares Russell and AdvisorShares

0.75

Correlation Coefficient

IShares Russell  AdvisorShares

Poor diversification

The 3 months correlation between IShares and AdvisorShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and AdvisorShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares 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 AdvisorShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares has no effect on the direction of IShares Russell i.e., IShares Russell and AdvisorShares go up and down completely randomly.

Pair Corralation between IShares Russell and AdvisorShares

If you would invest  21,121  in iShares Russell 2000 on September 5, 2024 and sell it today you would earn a total of  2,882  from holding iShares Russell 2000 or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

iShares Russell 2000  vs.  AdvisorShares

iShares Russell 2000

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

AdvisorShares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AdvisorShares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, AdvisorShares is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Russell and AdvisorShares

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

The idea behind iShares Russell 2000 and AdvisorShares 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.

Check out your portfolio center.

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.