Correlation Between Russell 2000 and Inverse Dow
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Inverse Dow 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 Inverse Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Russell 2000 2x and Inverse Dow 2x, you can compare the effects of market volatilities on Russell 2000 and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Inverse Dow.
Diversification Opportunities for Russell 2000 and Inverse Dow
-0.91 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Russell and INVERSE is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 2x are associated (or correlated) with Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Russell 2000 i.e., Russell 2000 and Inverse Dow go up and down completely randomly.
Pair Corralation between Russell 2000 and Inverse Dow
Assuming the 90 days horizon Russell 2000 2x is expected to generate 1.7 times more return on investment than Inverse Dow. However, Russell 2000 is 1.7 times more volatile than Inverse Dow 2x. It trades about 0.14 of its potential returns per unit of risk. Inverse Dow 2x is currently generating about -0.09 per unit of risk. If you would invest 16,687 in Russell 2000 2x on August 24, 2024 and sell it today you would earn a total of 1,571 from holding Russell 2000 2x or generate 9.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Russell 2000 2x vs. Inverse Dow 2x
Performance |
| Timeline |
| Russell 2000 2x |
| Inverse Dow 2x |
Russell 2000 and Inverse Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Inverse Dow
The main advantage of trading using opposite Russell 2000 and Inverse Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Inverse Dow 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 Inverse Dow will offset losses from the drop in Inverse Dow's long position.| Russell 2000 vs. Aqr Large Cap | Russell 2000 vs. Tax Managed Large Cap | Russell 2000 vs. William Blair Large | Russell 2000 vs. Quantitative U S |
| Inverse Dow vs. Federated Mdt Large | Inverse Dow vs. Rational Strategic Allocation | Inverse Dow vs. Alternative Asset Allocation | Inverse Dow vs. Gmo Equity Allocation |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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