Correlation Between Russell 2000 and Financial Services
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Financial Services 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 2000 and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Russell 2000 15x and Financial Services Fund, you can compare the effects of market volatilities on Russell 2000 and Financial Services 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 2000 with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Financial Services.
Diversification Opportunities for Russell 2000 and Financial Services
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Russell and Financial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 15x and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Russell 2000 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 2000 15x are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Russell 2000 i.e., Russell 2000 and Financial Services go up and down completely randomly.
Pair Corralation between Russell 2000 and Financial Services
Assuming the 90 days horizon Russell 2000 15x is expected to under-perform the Financial Services. In addition to that, Russell 2000 is 1.68 times more volatile than Financial Services Fund. It trades about -0.13 of its total potential returns per unit of risk. Financial Services Fund is currently generating about 0.0 per unit of volatility. If you would invest 8,324 in Financial Services Fund on December 28, 2024 and sell it today you would lose (46.00) from holding Financial Services Fund or give up 0.55% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Russell 2000 15x vs. Financial Services Fund
Performance |
Timeline |
Russell 2000 15x |
Financial Services |
Russell 2000 and Financial Services Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Russell 2000 and Financial Services
The main advantage of trading using opposite Russell 2000 and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.Russell 2000 vs. Ab Global Bond | Russell 2000 vs. Gmo Global Equity | Russell 2000 vs. Blue Current Global | Russell 2000 vs. Scharf Global Opportunity |
Financial Services vs. Summit Global Investments | Financial Services vs. Ab Global Real | Financial Services vs. Principal Lifetime Hybrid | Financial Services vs. Goldman Sachs Global |
Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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