Correlation Between Russell Australian and IShares UBS

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

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

Diversification Opportunities for Russell Australian and IShares UBS

0.57

Correlation Coefficient

Russell Australian  IShares UBS

Very weak diversification

The 3 months correlation between Russell and IShares is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Russell Australian Government and iShares UBS Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares UBS Government and Russell Australian 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 Russell Australian Government are associated (or correlated) with IShares UBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares UBS Government has no effect on the direction of Russell Australian i.e., Russell Australian and IShares UBS go up and down completely randomly.

Pair Corralation between Russell Australian and IShares UBS

Assuming the 90 days trading horizon Russell Australian Government is expected to generate 1.26 times more return on investment than IShares UBS. However, Russell Australian is 1.26 times more volatile than iShares UBS Government. It trades about 0.06 of its potential returns per unit of risk. iShares UBS Government is currently generating about -0.02 per unit of risk. If you would invest  1,874  in Russell Australian Government on December 30, 2024 and sell it today you would earn a total of  32.00  from holding Russell Australian Government or generate 1.71% return on investment over 90 days.

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

Russell Australian Government  vs.  iShares UBS Government

Russell Australian

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Russell Australian Government are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Russell Australian is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares UBS Government

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Russell Australian and IShares UBS

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

The idea behind Russell Australian Government and iShares UBS Government 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.