Correlation Between Vanguard and IShares Russell

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

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

Diversification Opportunities for Vanguard and IShares Russell

0.98

Correlation Coefficient

Vanguard  IShares Russell

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 and Vanguard 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 Vanguard SP Small Cap are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of Vanguard i.e., Vanguard and IShares Russell go up and down completely randomly.

Pair Corralation between Vanguard and IShares Russell

Given the investment horizon of 90 days Vanguard is expected to generate 1.61 times less return on investment than IShares Russell. But when comparing it to its historical volatility, Vanguard SP Small Cap is 1.16 times less risky than IShares Russell. It trades about 0.13 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  25,689  in iShares Russell 2000 on May 7, 2025 and sell it today you would earn a total of  3,475  from holding iShares Russell 2000 or generate 13.53% return on investment over 90 days.

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

Vanguard SP Small Cap  vs.  iShares Russell 2000

Vanguard SP Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in September 2025.

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 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard and IShares Russell

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

The idea behind Vanguard SP Small Cap and iShares Russell 2000 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.