Correlation Between Russell 2000 and Nasdaq-100(r)
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Nasdaq-100(r) 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 Nasdaq-100(r) 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 Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Russell 2000 and Nasdaq-100(r) 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 Nasdaq-100(r). Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Nasdaq-100(r).
Diversification Opportunities for Russell 2000 and Nasdaq-100(r)
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Russell and Nasdaq-100(r) is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 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 Nasdaq-100(r). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Russell 2000 i.e., Russell 2000 and Nasdaq-100(r) go up and down completely randomly.
Pair Corralation between Russell 2000 and Nasdaq-100(r)
Assuming the 90 days horizon Russell 2000 2x is expected to generate 1.63 times more return on investment than Nasdaq-100(r). However, Russell 2000 is 1.63 times more volatile than Nasdaq 100 2x Strategy. It trades about 0.29 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about 0.2 per unit of risk. If you would invest 16,595 in Russell 2000 2x on September 2, 2024 and sell it today you would earn a total of 3,385 from holding Russell 2000 2x or generate 20.4% 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. Nasdaq 100 2x Strategy
Performance |
| Timeline |
| Russell 2000 2x |
| Nasdaq 100 2x |
Russell 2000 and Nasdaq-100(r) Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Nasdaq-100(r)
The main advantage of trading using opposite Russell 2000 and Nasdaq-100(r) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Nasdaq-100(r) 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 Nasdaq-100(r) will offset losses from the drop in Nasdaq-100(r)'s long position.| Russell 2000 vs. Basic Materials Fund | Russell 2000 vs. Basic Materials Fund | Russell 2000 vs. Banking Fund Class | Russell 2000 vs. Basic Materials Fund |
| Nasdaq-100(r) vs. Sp 500 2x | Nasdaq-100(r) vs. Inverse Nasdaq 100 2x | Nasdaq-100(r) vs. Inverse Sp 500 | Nasdaq-100(r) vs. Ultra Nasdaq 100 Profunds |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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