Correlation Between Russell 2000 and Us Government
Can any of the company-specific risk be diversified away by investing in both Russell 2000 and Us Government 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 Us Government 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 Us Government Securities, you can compare the effects of market volatilities on Russell 2000 and Us Government 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 Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Russell 2000 and Us Government.
Diversification Opportunities for Russell 2000 and Us Government
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Russell and USGFX is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Russell 2000 2x and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Russell 2000 i.e., Russell 2000 and Us Government go up and down completely randomly.
Pair Corralation between Russell 2000 and Us Government
Assuming the 90 days horizon Russell 2000 2x is expected to generate 6.12 times more return on investment than Us Government. However, Russell 2000 is 6.12 times more volatile than Us Government Securities. It trades about 0.06 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.03 per unit of risk. If you would invest 13,257 in Russell 2000 2x on September 1, 2024 and sell it today you would earn a total of 6,579 from holding Russell 2000 2x or generate 49.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Russell 2000 2x vs. Us Government Securities
Performance |
| Timeline |
| Russell 2000 2x |
| Us Government Securities |
Russell 2000 and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Russell 2000 and Us Government
The main advantage of trading using opposite Russell 2000 and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Russell 2000 position performs unexpectedly, Us Government 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 Us Government will offset losses from the drop in Us Government's long position.| Russell 2000 vs. Us Government Securities | Russell 2000 vs. Short Term Government Fund | Russell 2000 vs. Franklin Government Money | Russell 2000 vs. Inverse Government Long |
| Us Government vs. Government Securities Fund | Us Government vs. John Hancock Government | Us Government vs. Short Term Government Fund | Us Government vs. Blackrock Government Bond |
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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