Correlation Between Russell 2000 and Guggenheim Alpha

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

Diversification Opportunities for Russell 2000 and Guggenheim Alpha

0.78

Correlation Coefficient

Russell 2000  Guggenheim Alpha

Poor diversification

The 3 months correlation between Russell and Guggenheim is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 15x and Guggenheim Alpha Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Alpha Opp 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 Guggenheim Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Alpha Opp has no effect on the direction of Russell 2000 i.e., Russell 2000 and Guggenheim Alpha go up and down completely randomly.

Pair Corralation between Russell 2000 and Guggenheim Alpha

Assuming the 90 days horizon Russell 2000 15x is expected to generate 3.14 times more return on investment than Guggenheim Alpha. However, Russell 2000 is 3.14 times more volatile than Guggenheim Alpha Opportunity. It trades about 0.16 of its potential returns per unit of risk. Guggenheim Alpha Opportunity is currently generating about 0.05 per unit of risk. If you would invest  5,388  in Russell 2000 15x on September 5, 2024 and sell it today you would earn a total of  1,052  from holding Russell 2000 15x or generate 19.52% return on investment over 90 days.

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

Russell 2000 15x  vs.  Guggenheim Alpha Opportunity

Russell 2000 15x

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 15x are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Russell 2000 showed solid returns over the last few months and may actually be approaching a breakup point.

Guggenheim Alpha Opp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guggenheim Alpha Opportunity are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Guggenheim Alpha is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Russell 2000 and Guggenheim Alpha

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

The idea behind Russell 2000 15x and Guggenheim Alpha Opportunity 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.