Correlation Between IShares Russell and ProShares

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

Diversification Opportunities for IShares Russell and ProShares

0.96

Correlation Coefficient

IShares Russell  ProShares

Almost no diversification

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

Pair Corralation between IShares Russell and ProShares

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.24 times more return on investment than ProShares. However, IShares Russell is 1.24 times more volatile than ProShares SP MidCap. It trades about -0.43 of its potential returns per unit of risk. ProShares SP MidCap is currently generating about -0.54 per unit of risk. If you would invest  18,046  in iShares Russell 2000 on September 25, 2024 and sell it today you would lose (1,660) from holding iShares Russell 2000 or give up 9.2% of portfolio value over 90 days.

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

iShares Russell 2000  vs.  ProShares SP MidCap

iShares Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ProShares SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Russell and ProShares

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

The idea behind iShares Russell 2000 and ProShares SP MidCap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.