Correlation Between IShares Russell and IShares Micro

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

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

Diversification Opportunities for IShares Russell and IShares Micro

0.82

Correlation Coefficient

IShares Russell  IShares Micro

Very poor diversification

The 3 months correlation between IShares and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and iShares Micro Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Micro Cap 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 Mid Cap are associated (or correlated) with IShares Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Micro Cap has no effect on the direction of IShares Russell i.e., IShares Russell and IShares Micro go up and down completely randomly.

Pair Corralation between IShares Russell and IShares Micro

Considering the 90-day investment horizon iShares Russell Mid Cap is expected to generate 0.61 times more return on investment than IShares Micro. However, iShares Russell Mid Cap is 1.63 times less risky than IShares Micro. It trades about -0.05 of its potential returns per unit of risk. iShares Micro Cap ETF is currently generating about -0.13 per unit of risk. If you would invest  12,866  in iShares Russell Mid Cap on December 29, 2024 and sell it today you would lose (355.00) from holding iShares Russell Mid Cap or give up 2.76% of portfolio value over 90 days.

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

iShares Russell Mid Cap  vs.  iShares Micro Cap ETF

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Micro Cap ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares Russell and IShares Micro

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

The idea behind iShares Russell Mid Cap and iShares Micro Cap ETF 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.