Correlation Between Rydex Inverse and Russell 2000

Can any of the company-specific risk be diversified away by investing in both Rydex Inverse and Russell 2000 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 Rydex Inverse and Russell 2000 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rydex Inverse Nasdaq 100 and Russell 2000 Fund, you can compare the effects of market volatilities on Rydex Inverse and Russell 2000 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 Rydex Inverse with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rydex Inverse and Russell 2000.

Diversification Opportunities for Rydex Inverse and Russell 2000

-0.07

Correlation Coefficient

Rydex Inverse  Russell 2000

Good diversification

The 3 months correlation between Rydex and Russell is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rydex Inverse Nasdaq 100 and Russell 2000 Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 and Rydex Inverse 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 Rydex Inverse Nasdaq 100 are associated (or correlated) with Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 has no effect on the direction of Rydex Inverse i.e., Rydex Inverse and Russell 2000 go up and down completely randomly.

Pair Corralation between Rydex Inverse and Russell 2000

Assuming the 90 days horizon Rydex Inverse Nasdaq 100 is expected to under-perform the Russell 2000. In addition to that, Rydex Inverse is 1.65 times more volatile than Russell 2000 Fund. It trades about -0.12 of its total potential returns per unit of risk. Russell 2000 Fund is currently generating about 0.03 per unit of volatility. If you would invest  4,480  in Russell 2000 Fund on October 8, 2024 and sell it today you would earn a total of  80.00  from holding Russell 2000 Fund or generate 1.79% return on investment over 90 days.

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

Rydex Inverse Nasdaq 100  vs.  Russell 2000 Fund

Rydex Inverse Nasdaq

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rydex Inverse Nasdaq 100 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 fundamental 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 2000

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Russell 2000 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rydex Inverse and Russell 2000

The main advantage of trading using opposite Rydex Inverse and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rydex Inverse position performs unexpectedly, Russell 2000 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 2000 will offset losses from the drop in Russell 2000's long position.

The idea behind Rydex Inverse Nasdaq 100 and Russell 2000 Fund 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.