Correlation Between IShares Russell and WisdomTree SmallCap

Can any of the company-specific risk be diversified away by investing in both IShares Russell and WisdomTree 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 IShares Russell and WisdomTree SmallCap 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 WisdomTree SmallCap Quality, you can compare the effects of market volatilities on IShares Russell and WisdomTree 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 IShares Russell with a short position of WisdomTree SmallCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and WisdomTree SmallCap.

Diversification Opportunities for IShares Russell and WisdomTree SmallCap

0.67

Correlation Coefficient

IShares Russell  WisdomTree SmallCap

Poor diversification

The 3 months correlation between IShares and WisdomTree is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 2000 and WisdomTree SmallCap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of IShares Russell i.e., IShares Russell and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between IShares Russell and WisdomTree SmallCap

Considering the 90-day investment horizon iShares Russell 2000 is expected to generate 1.02 times more return on investment than WisdomTree SmallCap. However, IShares Russell is 1.02 times more volatile than WisdomTree SmallCap Quality. It trades about 0.13 of its potential returns per unit of risk. WisdomTree SmallCap Quality is currently generating about 0.09 per unit of risk. If you would invest  20,839  in iShares Russell 2000 on May 17, 2025 and sell it today you would earn a total of  1,985  from holding iShares Russell 2000 or generate 9.53% return on investment over 90 days.

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

iShares Russell 2000  vs.  WisdomTree SmallCap Quality

iShares Russell 2000

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 10 (%) 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 September 2025.

WisdomTree SmallCap

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal primary indicators, WisdomTree SmallCap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Russell and WisdomTree SmallCap

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

The idea behind iShares Russell 2000 and WisdomTree SmallCap Quality 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.