Correlation Between IShares Russell and Vanguard

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

Diversification Opportunities for IShares Russell and Vanguard

0.98

Correlation Coefficient

IShares Russell  Vanguard

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of IShares Russell i.e., IShares Russell and Vanguard go up and down completely randomly.

Pair Corralation between IShares Russell and Vanguard

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 0.95 times more return on investment than Vanguard. However, iShares Russell 2000 is 1.05 times less risky than Vanguard. It trades about 0.32 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.3 per unit of risk. If you would invest  28,359  in iShares Russell 2000 on September 2, 2024 and sell it today you would earn a total of  3,177  from holding iShares Russell 2000 or generate 11.2% 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.  Vanguard SP Small Cap

iShares Russell 2000

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard SP Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Russell and Vanguard

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

The idea behind iShares Russell 2000 and Vanguard SP Small Cap 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.