Correlation Between IShares Factors and IShares Russell

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

By analyzing existing cross correlation between iShares Factors Growth and iShares Russell 1000, you can compare the effects of market volatilities on IShares Factors and IShares Russell 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 IShares Factors with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Factors and IShares Russell.

Diversification Opportunities for IShares Factors and IShares Russell

0.86

Correlation Coefficient

IShares Factors  IShares Russell

Very poor diversification

The 3 months correlation between IShares and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Factors Growth and iShares Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 and IShares Factors 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 iShares Factors Growth are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 1000 has no effect on the direction of IShares Factors i.e., IShares Factors and IShares Russell go up and down completely randomly.

Pair Corralation between IShares Factors and IShares Russell

Given the investment horizon of 90 days IShares Factors is expected to generate 1.04 times less return on investment than IShares Russell. In addition to that, IShares Factors is 1.12 times more volatile than iShares Russell 1000. It trades about 0.18 of its total potential returns per unit of risk. iShares Russell 1000 is currently generating about 0.21 per unit of volatility. If you would invest  36,463  in iShares Russell 1000 on September 12, 2024 and sell it today you would earn a total of  4,435  from holding iShares Russell 1000 or generate 12.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

iShares Factors Growth  vs.  iShares Russell 1000

iShares Factors Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Factors Growth are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal essential indicators, IShares Factors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Russell 1000

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Factors and IShares Russell

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

The idea behind iShares Factors Growth and iShares Russell 1000 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.