Correlation Between IShares Dow and IShares Russell

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

By analyzing existing cross correlation between iShares Dow Jones and iShares Russell 1000, you can compare the effects of market volatilities on IShares Dow and IShares Russell 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 Dow with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Dow and IShares Russell.

Diversification Opportunities for IShares Dow and IShares Russell

0.88

Correlation Coefficient

IShares Dow  IShares Russell

Very poor diversification

The 3 months correlation between IShares and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Dow Jones and iShares Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 and IShares Dow 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 Dow Jones are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 1000 has no effect on the direction of IShares Dow i.e., IShares Dow and IShares Russell go up and down completely randomly.

Pair Corralation between IShares Dow and IShares Russell

Considering the 90-day investment horizon iShares Dow Jones is expected to generate 1.02 times more return on investment than IShares Russell. However, IShares Dow is 1.02 times more volatile than iShares Russell 1000. It trades about 0.22 of its potential returns per unit of risk. iShares Russell 1000 is currently generating about 0.22 per unit of risk. If you would invest  13,359  in iShares Dow Jones on September 4, 2024 and sell it today you would earn a total of  1,410  from holding iShares Dow Jones or generate 10.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

iShares Dow Jones  vs.  iShares Russell 1000

iShares Dow Jones

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Dow Jones are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Dow may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Russell 1000

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Dow and IShares Russell

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

The idea behind iShares Dow Jones and iShares Russell 1000 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.