Correlation Between Multifactor and Russell Investment

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

By analyzing existing cross correlation between Multifactor Equity Fund and Russell Investment Tax Managed, you can compare the effects of market volatilities on Multifactor and Russell Investment 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 Multifactor with a short position of Russell Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multifactor and Russell Investment.

Diversification Opportunities for Multifactor and Russell Investment

0.88

Correlation Coefficient

Multifactor  Russell Investment

Very poor diversification

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

Pair Corralation between Multifactor and Russell Investment

Assuming the 90 days horizon Multifactor Equity Fund is expected to under-perform the Russell Investment. In addition to that, Multifactor is 4.38 times more volatile than Russell Investment Tax Managed. It trades about -0.09 of its total potential returns per unit of risk. Russell Investment Tax Managed is currently generating about -0.06 per unit of volatility. If you would invest  1,277  in Russell Investment Tax Managed on October 23, 2024 and sell it today you would lose (40.00) from holding Russell Investment Tax Managed or give up 3.13% of portfolio value over 90 days.

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

Multifactor Equity Fund  vs.  Russell Investment Tax Managed

Multifactor Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multifactor Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Russell Investment Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Russell Investment Tax Managed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Russell Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multifactor and Russell Investment

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

The idea behind Multifactor Equity Fund and Russell Investment Tax Managed 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..