Correlation Between IShares Russell and Vanguard
Can any of the company-specific risk be diversified away by investing in both IShares Russell and Vanguard 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 Russell and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Russell 2000 and Vanguard SP 500, you can compare the effects of market volatilities on IShares Russell and Vanguard 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 Russell with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Vanguard.
Diversification Opportunities for IShares Russell and Vanguard
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and IShares Russell 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 Russell 2000 are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of IShares Russell i.e., IShares Russell and Vanguard go up and down completely randomly.
Pair Corralation between IShares Russell and Vanguard
Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.86 times more return on investment than Vanguard. However, IShares Russell is 1.86 times more volatile than Vanguard SP 500. It trades about 0.14 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.13 per unit of risk. If you would invest 22,038 in iShares Russell 2000 on August 25, 2024 and sell it today you would earn a total of 1,839 from holding iShares Russell 2000 or generate 8.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Russell 2000 vs. Vanguard SP 500
Performance |
| Timeline |
| iShares Russell 2000 |
| Vanguard SP 500 |
IShares Russell and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Russell and Vanguard
The main advantage of trading using opposite IShares Russell and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.| IShares Russell vs. SPDR Dow Jones | IShares Russell vs. iShares MSCI Emerging | IShares Russell vs. Financial Select Sector | IShares Russell vs. SPDR SP 500 |
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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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