Correlation Between SP 500 and Xtrackers Russell

Can any of the company-specific risk be diversified away by investing in both SP 500 and Xtrackers 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 SP 500 and Xtrackers Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SP 500 VIX and Xtrackers Russell 2000, you can compare the effects of market volatilities on SP 500 and Xtrackers 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 SP 500 with a short position of Xtrackers Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and Xtrackers Russell.

Diversification Opportunities for SP 500 and Xtrackers Russell

-0.83

Correlation Coefficient

SP 500  Xtrackers Russell

Pay attention - limited upside

The 3 months correlation between VILX and Xtrackers is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 VIX and Xtrackers Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Russell 2000 and SP 500 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 SP 500 VIX are associated (or correlated) with Xtrackers Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Russell 2000 has no effect on the direction of SP 500 i.e., SP 500 and Xtrackers Russell go up and down completely randomly.

Pair Corralation between SP 500 and Xtrackers Russell

Assuming the 90 days trading horizon SP 500 VIX is expected to generate 12.63 times more return on investment than Xtrackers Russell. However, SP 500 is 12.63 times more volatile than Xtrackers Russell 2000. It trades about 0.07 of its potential returns per unit of risk. Xtrackers Russell 2000 is currently generating about -0.21 per unit of risk. If you would invest  160,538  in SP 500 VIX on October 10, 2024 and sell it today you would earn a total of  5,622  from holding SP 500 VIX or generate 3.5% return on investment over 90 days.

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

SP 500 VIX  vs.  Xtrackers Russell 2000

SP 500 VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP 500 VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Xtrackers Russell 2000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Russell 2000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers Russell may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SP 500 and Xtrackers Russell

The main advantage of trading using opposite SP 500 and Xtrackers Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, Xtrackers 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 Xtrackers Russell will offset losses from the drop in Xtrackers Russell's long position.

The idea behind SP 500 VIX and Xtrackers Russell 2000 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.