Correlation Between Russell 2000 and Sp 500
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Sp 500 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 Sp 500 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 Sp 500 2x, you can compare the effects of market volatilities on Russell 2000 and Sp 500 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 Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Sp 500.
Diversification Opportunities for Russell 2000 and Sp 500
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Russell and RYTNX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Sp 500 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 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 Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 2x has no effect on the direction of Russell 2000 i.e., Russell 2000 and Sp 500 go up and down completely randomly.
Pair Corralation between Russell 2000 and Sp 500
Assuming the 90 days horizon Russell 2000 2x is expected to generate 1.92 times more return on investment than Sp 500. However, Russell 2000 is 1.92 times more volatile than Sp 500 2x. It trades about 0.2 of its potential returns per unit of risk. Sp 500 2x is currently generating about 0.15 per unit of risk. If you would invest 17,132 in Russell 2000 2x on August 27, 2024 and sell it today you would earn a total of 2,396 from holding Russell 2000 2x or generate 13.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Russell 2000 2x vs. Sp 500 2x
Performance |
| Timeline |
| Russell 2000 2x |
| Sp 500 2x |
Russell 2000 and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Sp 500
The main advantage of trading using opposite Russell 2000 and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.| Russell 2000 vs. Qs Growth Fund | Russell 2000 vs. T Rowe Price | Russell 2000 vs. Balanced Fund Investor | Russell 2000 vs. Acm Tactical Income |
| Sp 500 vs. Direxion Monthly Nasdaq 100 | Sp 500 vs. Ultranasdaq 100 Profund Ultranasdaq 100 | Sp 500 vs. Dow 2x Strategy |
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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