Correlation Between Inverse Russell and Inverse Mid

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

By analyzing existing cross correlation between Inverse Russell 2000 and Inverse Mid Cap Strategy, you can compare the effects of market volatilities on Inverse Russell and Inverse Mid 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 Inverse Russell with a short position of Inverse Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Russell and Inverse Mid.

Diversification Opportunities for Inverse Russell and Inverse Mid

0.93

Correlation Coefficient

Inverse Russell  Inverse Mid

Almost no diversification

The 3 months correlation between Inverse and Inverse is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Russell 2000 and Inverse Mid Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Mid Cap and Inverse 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 Inverse Russell 2000 are associated (or correlated) with Inverse Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Mid Cap has no effect on the direction of Inverse Russell i.e., Inverse Russell and Inverse Mid go up and down completely randomly.

Pair Corralation between Inverse Russell and Inverse Mid

Assuming the 90 days horizon Inverse Russell 2000 is expected to under-perform the Inverse Mid. In addition to that, Inverse Russell is 1.33 times more volatile than Inverse Mid Cap Strategy. It trades about -0.14 of its total potential returns per unit of risk. Inverse Mid Cap Strategy is currently generating about -0.17 per unit of volatility. If you would invest  4,968  in Inverse Mid Cap Strategy on September 4, 2024 and sell it today you would lose (491.00) from holding Inverse Mid Cap Strategy or give up 9.88% of portfolio value over 90 days.

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

Inverse Russell 2000  vs.  Inverse Mid Cap Strategy

Inverse Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Russell 2000 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Inverse Russell and Inverse Mid

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

The idea behind Inverse Russell 2000 and Inverse Mid Cap Strategy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.