Correlation Between IShares Russell and IShares SP

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

By analyzing existing cross correlation between iShares Russell 3000 and iShares SP 100, you can compare the effects of market volatilities on IShares Russell and IShares SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and IShares SP.

Diversification Opportunities for IShares Russell and IShares SP

0.96

Correlation Coefficient

IShares Russell  IShares SP

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 3000 and iShares SP 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 100 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 3000 are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 100 has no effect on the direction of IShares Russell i.e., IShares Russell and IShares SP go up and down completely randomly.

Pair Corralation between IShares Russell and IShares SP

Considering the 90-day investment horizon IShares Russell is expected to generate 1.39 times less return on investment than IShares SP. But when comparing it to its historical volatility, iShares Russell 3000 is 1.02 times less risky than IShares SP. It trades about 0.1 of its potential returns per unit of risk. iShares SP 100 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  27,439  in iShares SP 100 on September 25, 2024 and sell it today you would earn a total of  1,920  from holding iShares SP 100 or generate 7.0% 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 3000  vs.  iShares SP 100

iShares Russell 3000

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 3000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares SP 100

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 100 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Russell and IShares SP

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

The idea behind iShares Russell 3000 and iShares SP 100 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.