Correlation Between IShares Russell and Vulcan Value

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

Diversification Opportunities for IShares Russell and Vulcan Value

-0.31

Correlation Coefficient

IShares Russell  Vulcan Value

Very good diversification

The 3 months correlation between IShares and Vulcan is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners 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 Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of IShares Russell i.e., IShares Russell and Vulcan Value go up and down completely randomly.

Pair Corralation between IShares Russell and Vulcan Value

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.38 times more return on investment than Vulcan Value. However, IShares Russell is 1.38 times more volatile than Vulcan Value Partners. It trades about 0.1 of its potential returns per unit of risk. Vulcan Value Partners is currently generating about -0.07 per unit of risk. If you would invest  21,687  in iShares Russell 2000 on September 16, 2024 and sell it today you would earn a total of  1,620  from holding iShares Russell 2000 or generate 7.47% return on investment over 90 days.

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

iShares Russell 2000  vs.  Vulcan Value Partners

iShares Russell 2000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vulcan Value Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vulcan Value Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Russell and Vulcan Value

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

The idea behind iShares Russell 2000 and Vulcan Value Partners 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.