Correlation Between Fundamental Large and Russell 2000

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Can any of the company-specific risk be diversified away by investing in both Fundamental Large and Russell 2000 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 Fundamental Large and Russell 2000 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fundamental Large Cap and Russell 2000 2x, you can compare the effects of market volatilities on Fundamental Large and Russell 2000 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 Fundamental Large with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fundamental Large and Russell 2000.

Diversification Opportunities for Fundamental Large and Russell 2000

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between FUNDAMENTAL and RUSSELL is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Russell 2000 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 2x and Fundamental Large 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 Fundamental Large Cap are associated (or correlated) with Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 2x has no effect on the direction of Fundamental Large i.e., Fundamental Large and Russell 2000 go up and down completely randomly.

Pair Corralation between Fundamental Large and Russell 2000

Assuming the 90 days horizon Fundamental Large is expected to generate 4.0 times less return on investment than Russell 2000. But when comparing it to its historical volatility, Fundamental Large Cap is 3.86 times less risky than Russell 2000. It trades about 0.21 of its potential returns per unit of risk. Russell 2000 2x is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  17,035  in Russell 2000 2x on August 30, 2024 and sell it today you would earn a total of  2,801  from holding Russell 2000 2x or generate 16.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Fundamental Large Cap  vs.  Russell 2000 2x

 Performance 
       Timeline  
Fundamental Large Cap 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fundamental Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Russell 2000 2x 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 2x are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Russell 2000 showed solid returns over the last few months and may actually be approaching a breakup point.

Fundamental Large and Russell 2000 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fundamental Large and Russell 2000

The main advantage of trading using opposite Fundamental Large and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large position performs unexpectedly, Russell 2000 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 Russell 2000 will offset losses from the drop in Russell 2000's long position.
The idea behind Fundamental Large Cap and Russell 2000 2x pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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