Correlation Between Russell 2000 and Government Long
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Government Long 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 Government Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Russell 2000 Fund and Government Long Bond, you can compare the effects of market volatilities on Russell 2000 and Government Long 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 Government Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Government Long.
Diversification Opportunities for Russell 2000 and Government Long
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Russell and Government is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 Fund and Government Long Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Long Bond 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 Fund are associated (or correlated) with Government Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Long Bond has no effect on the direction of Russell 2000 i.e., Russell 2000 and Government Long go up and down completely randomly.
Pair Corralation between Russell 2000 and Government Long
Assuming the 90 days horizon Russell 2000 Fund is expected to generate 1.39 times more return on investment than Government Long. However, Russell 2000 is 1.39 times more volatile than Government Long Bond. It trades about 0.09 of its potential returns per unit of risk. Government Long Bond is currently generating about -0.07 per unit of risk. If you would invest 5,394 in Russell 2000 Fund on October 23, 2024 and sell it today you would earn a total of 89.00 from holding Russell 2000 Fund or generate 1.65% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Russell 2000 Fund vs. Government Long Bond
Performance |
Timeline |
Russell 2000 |
Government Long Bond |
Russell 2000 and Government Long Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Russell 2000 and Government Long
The main advantage of trading using opposite Russell 2000 and Government Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Government Long 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 Government Long will offset losses from the drop in Government Long's long position.Russell 2000 vs. Basic Materials Fund | Russell 2000 vs. Basic Materials Fund | Russell 2000 vs. Banking Fund Class | Russell 2000 vs. Basic Materials Fund |
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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 Stocks Directory module to find actively traded stocks across global markets.
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