Correlation Between Europe 125x and Russell 2000

Can any of the company-specific risk be diversified away by investing in both Europe 125x 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 Europe 125x and Russell 2000 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Europe 125x Strategy and Russell 2000 15x, you can compare the effects of market volatilities on Europe 125x 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 Europe 125x with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Europe 125x and Russell 2000.

Diversification Opportunities for Europe 125x and Russell 2000

-0.67

Correlation Coefficient

Europe 125x  Russell 2000

Excellent diversification

The 3 months correlation between Europe and Russell is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Europe 125x Strategy and Russell 2000 15x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 15x and Europe 125x 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 Europe 125x Strategy 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 15x has no effect on the direction of Europe 125x i.e., Europe 125x and Russell 2000 go up and down completely randomly.

Pair Corralation between Europe 125x and Russell 2000

Assuming the 90 days horizon Europe 125x Strategy is expected to generate 0.61 times more return on investment than Russell 2000. However, Europe 125x Strategy is 1.63 times less risky than Russell 2000. It trades about 0.2 of its potential returns per unit of risk. Russell 2000 15x is currently generating about -0.13 per unit of risk. If you would invest  7,678  in Europe 125x Strategy on December 30, 2024 and sell it today you would earn a total of  1,116  from holding Europe 125x Strategy or generate 14.54% return on investment over 90 days.

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

Europe 125x Strategy  vs.  Russell 2000 15x

Europe 125x Strategy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Europe 125x Strategy are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Europe 125x showed solid returns over the last few months and may actually be approaching a breakup point.

Russell 2000 15x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Russell 2000 15x 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 primary indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Europe 125x and Russell 2000

The main advantage of trading using opposite Europe 125x and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Europe 125x 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 Europe 125x Strategy and Russell 2000 15x 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.