Correlation Between IShares Russell and Principal Small

Can any of the company-specific risk be diversified away by investing in both IShares Russell and Principal Small 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 IShares Russell and Principal Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Russell 2000 and Principal Small Cap Multi Factor, you can compare the effects of market volatilities on IShares Russell and Principal Small 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 IShares Russell with a short position of Principal Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Principal Small.

Diversification Opportunities for IShares Russell and Principal Small

0.85

Correlation Coefficient

IShares Russell  Principal Small

Very poor diversification

The 3 months correlation between IShares and Principal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and Principal Small Cap Multi Fact in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Small Cap and IShares Russell 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 iShares Russell 2000 are associated (or correlated) with Principal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Small Cap has no effect on the direction of IShares Russell i.e., IShares Russell and Principal Small go up and down completely randomly.

Pair Corralation between IShares Russell and Principal Small

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 0.96 times more return on investment than Principal Small. However, iShares Russell 2000 is 1.04 times less risky than Principal Small. It trades about 0.14 of its potential returns per unit of risk. Principal Small Cap Multi Factor is currently generating about 0.1 per unit of risk. If you would invest  22,349  in iShares Russell 2000 on July 28, 2025 and sell it today you would earn a total of  2,594  from holding iShares Russell 2000 or generate 11.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

iShares Russell 2000  vs.  Principal Small Cap Multi Fact

iShares Russell 2000

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Principal Small Cap

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Small Cap Multi Factor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Principal Small may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Pair Trading with IShares Russell and Principal Small

The main advantage of trading using opposite IShares Russell and Principal Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell position performs unexpectedly, Principal Small 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 Principal Small will offset losses from the drop in Principal Small's long position.

The idea behind iShares Russell 2000 and Principal Small Cap Multi Factor 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.