Correlation Between Russell 2000 and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Russell 2000 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 Russell 2000 and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Russell 2000 15x and Dow Jones Industrial, you can compare the effects of market volatilities on Russell 2000 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 Russell 2000 with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Dow Jones.
Diversification Opportunities for Russell 2000 and Dow Jones
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Russell and Dow is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 15x 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 Russell 2000 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 Russell 2000 15x 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 Russell 2000 i.e., Russell 2000 and Dow Jones go up and down completely randomly.
Pair Corralation between Russell 2000 and Dow Jones
Assuming the 90 days horizon Russell 2000 15x is expected to generate 2.68 times more return on investment than Dow Jones. However, Russell 2000 is 2.68 times more volatile than Dow Jones Industrial. It trades about 0.05 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of risk. If you would invest 3,288 in Russell 2000 15x on September 2, 2024 and sell it today you would earn a total of 1,388 from holding Russell 2000 15x or generate 42.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Russell 2000 15x vs. Dow Jones Industrial
Performance |
| Timeline |
Russell 2000 and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Russell 2000 15x
Pair trading matchups for Russell 2000
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Russell 2000 and Dow Jones
The main advantage of trading using opposite Russell 2000 and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 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.| Russell 2000 vs. Jhancock Real Estate | Russell 2000 vs. Deutsche Real Estate | Russell 2000 vs. Dunham Real Estate | Russell 2000 vs. Deutsche Real Estate |
| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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