Correlation Between Energy Fund and Inverse Russell

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

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

Diversification Opportunities for Energy Fund and Inverse Russell

-0.62

Correlation Coefficient

Energy Fund  Inverse Russell

Excellent diversification

The 3 months correlation between Energy and Inverse is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class and Inverse Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Russell 2000 and Energy Fund 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 Energy Fund Class are associated (or correlated) with Inverse Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Russell 2000 has no effect on the direction of Energy Fund i.e., Energy Fund and Inverse Russell go up and down completely randomly.

Pair Corralation between Energy Fund and Inverse Russell

Assuming the 90 days horizon Energy Fund is expected to generate 4.07 times less return on investment than Inverse Russell. In addition to that, Energy Fund is 1.07 times more volatile than Inverse Russell 2000. It trades about 0.03 of its total potential returns per unit of risk. Inverse Russell 2000 is currently generating about 0.14 per unit of volatility. If you would invest  13,638  in Inverse Russell 2000 on December 30, 2024 and sell it today you would earn a total of  1,464  from holding Inverse Russell 2000 or generate 10.73% return on investment over 90 days.

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

Energy Fund Class  vs.  Inverse Russell 2000

Energy Fund Class

Risk-Adjusted Performance

Weak

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

Inverse Russell 2000

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Russell 2000 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Inverse Russell may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Energy Fund and Inverse Russell

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

The idea behind Energy Fund Class and Inverse Russell 2000 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.