Correlation Between Oppenheimer Russell and SP 500

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Can any of the company-specific risk be diversified away by investing in both Oppenheimer Russell and SP 500 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 Oppenheimer Russell and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oppenheimer Russell 1000 and SP 500 EW, you can compare the effects of market volatilities on Oppenheimer Russell and SP 500 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 Oppenheimer Russell with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oppenheimer Russell and SP 500.

Diversification Opportunities for Oppenheimer Russell and SP 500

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Oppenheimer and SP 500 is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Oppenheimer Russell 1000 and SP 500 EW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 EW and Oppenheimer 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 Oppenheimer Russell 1000 are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 EW has no effect on the direction of Oppenheimer Russell i.e., Oppenheimer Russell and SP 500 go up and down completely randomly.

Pair Corralation between Oppenheimer Russell and SP 500

Given the investment horizon of 90 days Oppenheimer Russell 1000 is expected to generate 0.84 times more return on investment than SP 500. However, Oppenheimer Russell 1000 is 1.2 times less risky than SP 500. It trades about -0.27 of its potential returns per unit of risk. SP 500 EW is currently generating about -0.29 per unit of risk. If you would invest  4,203  in Oppenheimer Russell 1000 on July 4, 2022 and sell it today you would lose (297.00)  from holding Oppenheimer Russell 1000 or give up 7.07% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Oppenheimer Russell 1000  vs.  SP 500 EW

 Performance (%) 
       Timeline  
Oppenheimer Russell 1000 
Oppenheimer Performance
0 of 100
Over the last 90 days Oppenheimer Russell 1000 has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, Oppenheimer Russell is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Oppenheimer Price Channel

SP 500 EW 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 EW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, SP 500 is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

SP 500 Price Channel

Oppenheimer Russell and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Oppenheimer Russell and SP 500

The main advantage of trading using opposite Oppenheimer Russell and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oppenheimer Russell position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Oppenheimer Russell as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Oppenheimer Russell's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Oppenheimer Russell's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Oppenheimer Russell 1000.
The idea behind Oppenheimer Russell 1000 and SP 500 EW 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP 500 EW.
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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