Correlation Between Ultra Short and Ishares Russell

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

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

Diversification Opportunities for Ultra Short and Ishares Russell

0.82

Correlation Coefficient

Ultra Short  Ishares Russell

Very poor diversification

The 3 months correlation between Ultra and Ishares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Income 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 Ultra Short 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 Ultra Short Income 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 Ultra Short i.e., Ultra Short and Ishares Russell go up and down completely randomly.

Pair Corralation between Ultra Short and Ishares Russell

Assuming the 90 days horizon Ultra Short is expected to generate 4.04 times less return on investment than Ishares Russell. But when comparing it to its historical volatility, Ultra Short Income is 8.29 times less risky than Ishares Russell. It trades about 0.23 of its potential returns per unit of risk. Ishares Russell 1000 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,994  in Ishares Russell 1000 on September 20, 2024 and sell it today you would earn a total of  1,661  from holding Ishares Russell 1000 or generate 55.48% return on investment over 90 days.

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

Ultra Short Income  vs.  Ishares Russell 1000

Ultra Short Income

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Income are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ishares Russell 1000

Risk-Adjusted Performance

5 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Russell 1000 are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ishares Russell is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ultra Short and Ishares Russell

The main advantage of trading using opposite Ultra Short and Ishares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short 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 Ultra Short Income 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.