Correlation Between IShares Trust and Small Cap

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

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

Diversification Opportunities for IShares Trust and Small Cap

0.88

Correlation Coefficient

IShares Trust  Small Cap

Very poor diversification

The 3 months correlation between IShares and Small is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and IShares Trust 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 Trust are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of IShares Trust i.e., IShares Trust and Small Cap go up and down completely randomly.

Pair Corralation between IShares Trust and Small Cap

Given the investment horizon of 90 days IShares Trust is expected to generate 2.17 times less return on investment than Small Cap. But when comparing it to its historical volatility, iShares Trust is 8.34 times less risky than Small Cap. It trades about 0.31 of its potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,306  in Small Cap Value Profund on May 4, 2025 and sell it today you would earn a total of  450.00  from holding Small Cap Value Profund or generate 6.16% return on investment over 90 days.

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

iShares Trust   vs.  Small Cap Value Profund

iShares Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Small Cap Value

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Trust and Small Cap

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

The idea behind iShares Trust and Small Cap Value Profund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..