Correlation Between Russell 2000 and Oil Gas

Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Oil Gas 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 Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Russell 2000 2x and Oil Gas Ultrasector, you can compare the effects of market volatilities on Russell 2000 and Oil Gas 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 Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Oil Gas.

Diversification Opportunities for Russell 2000 and Oil Gas

0.7

Correlation Coefficient

Russell 2000  Oil Gas

Poor diversification

The 3 months correlation between Russell and Oil is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector 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 2x are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Russell 2000 i.e., Russell 2000 and Oil Gas go up and down completely randomly.

Pair Corralation between Russell 2000 and Oil Gas

Assuming the 90 days horizon Russell 2000 2x is expected to under-perform the Oil Gas. In addition to that, Russell 2000 is 1.72 times more volatile than Oil Gas Ultrasector. It trades about -0.27 of its total potential returns per unit of risk. Oil Gas Ultrasector is currently generating about -0.23 per unit of volatility. If you would invest  3,717  in Oil Gas Ultrasector on October 10, 2024 and sell it today you would lose (267.00) from holding Oil Gas Ultrasector or give up 7.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Russell 2000 2x  vs.  Oil Gas Ultrasector

Russell 2000 2x

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 2x are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Russell 2000 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Gas Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil Gas Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Russell 2000 and Oil Gas

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

The idea behind Russell 2000 2x and Oil Gas Ultrasector 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.