Correlation Between IShares Small and IShares Russell

Can any of the company-specific risk be diversified away by investing in both IShares Small 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 Small 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 Small Cap and iShares Russell Mid Cap, you can compare the effects of market volatilities on IShares Small 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 Small with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Small and IShares Russell.

Diversification Opportunities for IShares Small and IShares Russell

0.96

Correlation Coefficient

IShares Small  IShares Russell

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Small Cap and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid and IShares Small 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 Small Cap 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 Mid has no effect on the direction of IShares Small i.e., IShares Small and IShares Russell go up and down completely randomly.

Pair Corralation between IShares Small and IShares Russell

Given the investment horizon of 90 days iShares Small Cap is expected to under-perform the IShares Russell. In addition to that, IShares Small is 1.13 times more volatile than iShares Russell Mid Cap. It trades about -0.1 of its total potential returns per unit of risk. iShares Russell Mid Cap is currently generating about -0.06 per unit of volatility. If you would invest  8,816  in iShares Russell Mid Cap on December 29, 2024 and sell it today you would lose (353.00) from holding iShares Russell Mid Cap or give up 4.0% of portfolio value over 90 days.

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

iShares Small Cap  vs.  iShares Russell Mid Cap

iShares Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Etf's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, IShares Russell is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Small and IShares Russell

The main advantage of trading using opposite IShares Small and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Small 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 Small Cap and iShares Russell Mid Cap 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.