Correlation Between IPath Series and IShares Russell

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

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

Diversification Opportunities for IPath Series and IShares Russell

-0.76

Correlation Coefficient

IPath Series  IShares Russell

Pay attention - limited upside

The 3 months correlation between IPath and IShares is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding iPath Series B 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 IPath Series 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 iPath Series B 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 IPath Series i.e., IPath Series and IShares Russell go up and down completely randomly.

Pair Corralation between IPath Series and IShares Russell

Considering the 90-day investment horizon iPath Series B is expected to under-perform the IShares Russell. In addition to that, IPath Series is 3.51 times more volatile than iShares Russell Mid Cap. It trades about -0.05 of its total potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.26 per unit of volatility. If you would invest  11,433  in iShares Russell Mid Cap on September 15, 2024 and sell it today you would earn a total of  1,934  from holding iShares Russell Mid Cap or generate 16.92% return on investment over 90 days.

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

iPath Series B  vs.  iShares Russell Mid Cap

iPath Series B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iPath Series B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares Russell Mid

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, IShares Russell reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IPath Series and IShares Russell

The main advantage of trading using opposite IPath Series and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPath Series 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 iPath Series B 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.