Correlation Between Russell 2000 and Europe 125x

Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Europe 125x 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 Europe 125x 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 Europe 125x Strategy, you can compare the effects of market volatilities on Russell 2000 and Europe 125x 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 Europe 125x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Europe 125x.

Diversification Opportunities for Russell 2000 and Europe 125x

-0.63

Correlation Coefficient

Russell 2000  Europe 125x

Excellent diversification

The 3 months correlation between Russell and Europe is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 15x and Europe 125x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europe 125x Strategy 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 Europe 125x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europe 125x Strategy has no effect on the direction of Russell 2000 i.e., Russell 2000 and Europe 125x go up and down completely randomly.

Pair Corralation between Russell 2000 and Europe 125x

Assuming the 90 days horizon Russell 2000 15x is expected to under-perform the Europe 125x. In addition to that, Russell 2000 is 1.58 times more volatile than Europe 125x Strategy. It trades about -0.12 of its total potential returns per unit of risk. Europe 125x Strategy is currently generating about 0.23 per unit of volatility. If you would invest  9,837  in Europe 125x Strategy on December 22, 2024 and sell it today you would earn a total of  1,618  from holding Europe 125x Strategy or generate 16.45% return on investment over 90 days.

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

Russell 2000 15x  vs.  Europe 125x Strategy

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 forward-looking signals 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.

Europe 125x Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europe 125x Strategy are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Europe 125x showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Russell 2000 and Europe 125x

The main advantage of trading using opposite Russell 2000 and Europe 125x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Europe 125x 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 Europe 125x will offset losses from the drop in Europe 125x's long position.

The idea behind Russell 2000 15x and Europe 125x 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.