Correlation Between IShares Russell and Dow Jones
Can any of the company-specific risk be diversified away by investing in both IShares Russell and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on IShares Russell and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Dow Jones.
Diversification Opportunities for IShares Russell and Dow Jones
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Dow is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of IShares Russell i.e., IShares Russell and Dow Jones go up and down completely randomly.
Pair Corralation between IShares Russell and Dow Jones
Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.68 times more return on investment than Dow Jones. However, IShares Russell is 1.68 times more volatile than Dow Jones Industrial. It trades about 0.23 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.26 per unit of risk. If you would invest 28,734 in iShares Russell 2000 on August 27, 2024 and sell it today you would earn a total of 2,290 from holding iShares Russell 2000 or generate 7.97% 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. Dow Jones Industrial
Performance |
| Timeline |
IShares Russell and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
iShares Russell 2000
Pair trading matchups for IShares Russell
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with IShares Russell and Dow Jones
The main advantage of trading using opposite IShares Russell and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| IShares Russell vs. iShares Russell 2000 | IShares Russell vs. iShares Russell Mid Cap | IShares Russell vs. iShares Russell 1000 | IShares Russell vs. iShares Russell 1000 |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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