Correlation Between Russell 2000 and Sp Smallcap
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Sp Smallcap 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 Smallcap 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 Smallcap 600, you can compare the effects of market volatilities on Russell 2000 and Sp Smallcap 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 Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Sp Smallcap.
Diversification Opportunities for Russell 2000 and Sp Smallcap
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Russell and RYWAX is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 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 Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Russell 2000 i.e., Russell 2000 and Sp Smallcap go up and down completely randomly.
Pair Corralation between Russell 2000 and Sp Smallcap
Assuming the 90 days horizon Russell 2000 2x is expected to generate 2.13 times more return on investment than Sp Smallcap. However, Russell 2000 is 2.13 times more volatile than Sp Smallcap 600. It trades about 0.06 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.07 per unit of risk. If you would invest 13,360 in Russell 2000 2x on September 2, 2024 and sell it today you would earn a total of 6,620 from holding Russell 2000 2x or generate 49.55% 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 2x vs. Sp Smallcap 600
Performance |
| Timeline |
| Russell 2000 2x |
| Sp Smallcap 600 |
Russell 2000 and Sp Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Sp Smallcap
The main advantage of trading using opposite Russell 2000 and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Sp Smallcap 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 Smallcap will offset losses from the drop in Sp Smallcap'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 |
| Sp Smallcap vs. Sp 500 Pure | Sp Smallcap vs. Sp Midcap 400 | Sp Smallcap vs. Sp Smallcap 600 | Sp Smallcap vs. Sp 500 Pure |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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