Correlation Between Russell 2000 and Equity Growth

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

Diversification Opportunities for Russell 2000 and Equity Growth

0.59

Correlation Coefficient

Russell 2000  Equity Growth

Very weak diversification

The 3 months correlation between Russell and Equity is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Russell 2000 i.e., Russell 2000 and Equity Growth go up and down completely randomly.

Pair Corralation between Russell 2000 and Equity Growth

Assuming the 90 days horizon Russell 2000 2x is expected to under-perform the Equity Growth. In addition to that, Russell 2000 is 2.59 times more volatile than Equity Growth Fund. It trades about -0.18 of its total potential returns per unit of risk. Equity Growth Fund is currently generating about -0.07 per unit of volatility. If you would invest  3,464  in Equity Growth Fund on December 1, 2024 and sell it today you would lose (130.00) from holding Equity Growth Fund or give up 3.75% of portfolio value over 90 days.

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

Russell 2000 2x  vs.  Equity Growth Fund

Russell 2000 2x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Russell 2000 2x 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 basic indicators 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.

Equity Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Equity Growth 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 Equity Growth

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

The idea behind Russell 2000 2x and Equity Growth Fund 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.