Hedge funds


Capitalize on periods of dispersion among equity indices


E-mini and Micro E-mini Equity futures


The act of constructing a portfolio that will be judged and rated against an existing index benchmark is called benchmarking, and it plays an important role in understanding a portfolio’s performance. In the global equity market, certain domestic equity indices are recognized as an established benchmark that other portfolios are measured against.

World Equity Benchmarks

Equity Index Country Futures/Exchange
S&P 500 Index United States CME
IPC Mexico MexDer
Bovespa Brazil B3
Kospi 200 Korea Korea Exchange
FTSE China A50 China SGX
Nikkei 225 Japan OSE, SGX, CME

In the U.S., the three dominant equity benchmarks include the S&P 500, which consists of larger companies, the tech-centric Nasdaq-100, and the Russell 2000, which is comprised of smaller capitalization companies. When looking at these indices, there is a high degree of correlation over a long period of time; however, dispersion can occur among these indices because of the differences in their construction and constituent members, which can create opportunities for asset managers and self-directed traders.

Correlation in U.S. Equity Indices

This is why the choice of index matters. Each one will perform differently, so market participants should consider researching the specific makeup of each index and follow related market events to understand potential impacts to their trade strategy.

Scenario 1: Equity Index Spread

The U.S equity market reaction to concerns around certain regional banks in March 2023 impacted the Russell 2000 and the Nasdaq-100 differently resulting in index dispersion. After news about trouble in the banking sector, the Russell 2000, which is composed of about 15% financials, closed lower in the month. However, the Nasdaq-100, which contains 0% financials, closed higher.

Russell 2000 vs. Nasdaq-100 Performance


Assume it is March 2023, a manager of an actively managed $1 billion U.S. equity portfolio who is anticipating negative effects of the news of Silicon Valley Bank (SVB) on the small-cap Russell 2000 index wants to rotate a portion of position away from Russell 2000 and increase exposure to the non-financial large-cap Nasdaq-100. He decides that a 10% rotation would be appropriate.  

On March 9, he elects to make this adjustment using E-mini Russell 2000 and E-mini Nasdaq-100 futures. He will sell E-mini Russell 2000 futures and buy E-mini Nasdaq-100 futures since he wants to pivot away from the financials-sensitive Russell 2000 and toward the less financials-sensitive Nasdaq-100.  

When trading one index future against another, it is necessary to calculate the appropriate dollar neutral hedge ratio (HR) per leg: 

10% of $1B = $100M equivalent risk  

Hedge ratio = Risk / (futures price x multiplier)  

HR (NQM3) = 100M / (12144.25 x $20) = 412 NQM3 buy  

HR (RTYM3) = 100M / (1844.30 x $50) = 1084 RTYM3 sell  

Therefore, on March 9 he buys 412 NQM3 at 12144.25 and sells 1084 RTYM3 at 1844.30. 


From March 9 and into mid-April, the equity market deals with the fallout of the SVB failure and other regional bank solvency concerns, and NQM3 ends up trading higher than RTYM3. The net result in an April 14 offset would be as follows:

RTYM3 = 1791.70, -52.60 points, -2.8%
NQM3 = 13181.25, +1037.00 points, +8.5%

Market Activity: March - April

In this example, the resulting profit from the 10% pivot away from the Russell 2000 and toward the Nasdaq-100 would have been over $11M:


  • Sold 1084 RTYM3 at 1844.30
  • Bought 1084 RTYM3 at 1791.70
  • Gain of 52.60 points

52.60 x $50 x 1084 = $2,850,920

$8,544,880 + $2,850,920 = $11,395,800 gain

  • Spread overlay return = 11.4%
  • 114.0 bps alpha


  • Bought 412 NQM3 at 12144.25
  • Sold 412 NQM3 at 13181.25
  • Gain of 1037.00 points

1037.00 x $20 x 412 = $8,544,880

Scenario 2: Russell 1000 Value and Growth Spread

Within the Russell 1000 universe, the Russell 1000 Value focuses constituent members with a lower sales per share growth component, primarily in financials, health care, and industrials. The Russell 1000 Growth looks at those with a higher sales per share growth component, mainly in industries such as technology, consumer discretionary, and industrials. While there is a high level of correlation, there is still a degree of difference between them that could create opportunities for relative value expressions through the sale of one to buy the other.

Comparing Russell 1000 Indices


Assume it is January 2023 and a manager of $100 million U.S. equity portfolio benchmarked to Russell 1000 Index wants to rotate a portion of position away from Value sector and increase exposure to Growth. It’s been over a year of repeated Fed interest rate increases and it seems as though the Fed may be closer to ending these increases than continuing them. He decides a 10% rotation from Value into Growth would be appropriate.    

On January 3, instead of reconstructing the portfolio or having to short an EFT, he elects to make this adjustment using E-mini Russell 1000 Value (RSV) and E-mini Russell 1000 Growth (RSG) futures.  He will sell E-mini Russell 1000 Value futures and buy E-mini Russell 1000 Growth futures since he believes Growth (RSG) will outperform Value (RSV). 

When trading one index future against another, it is necessary to calculate the appropriate dollar neutral hedge ratio (HR) per leg: 

10% of $100M = $10M equivalent risk  

Hedge ratio = Risk / (futures price x multiplier)  

HR (RSVM3) = 10M / (1516.50 x $20) = 132 RSVM3 sell  

HR (RSGM3) = 10M / (2169.90 x $50) = 92 RSGM3 buy  

Therefore, on January 3 he buys 92 RSG3 at 2169.90 and sells 132 RSVM3 at 1516.50. 


From January 3 to mid-April, equity markets responded to a shift in interest rate policy and economic growth outlook. By mid-April, Growth is up almost twice as much while Value remains almost unchanged. The net result in an April 21 offset would be as follows:

RSVM3 = 1526.20, +9.70 points, +0.6%
RSGM3 = 2472.60, 302.70 points, +13.9%

Market Activity: January - April

In this example, the resulting profit from the 10% pivot away from Value and toward Growth would have been over $1M.


  • Sold 72 RSGH2 at 2768.50
  • Bought 72 RSGH2 at 2702.50
  • Gain of 66.00 points

66.00 x $50 x 72 = $237,600

$1,392,420 - $64,020 = $1,328,400 gain or 133.0 basis points on $100mm


  • Bought 129 RSVH2 at 1549.40
  • Sold 129 RSVH2 at 1610.20
  • Gain of 60.80 points

60.80 x $50 x 129 = $392,160


While equity markets indices are often highly correlated, periods of dispersion still occur since the composition of different equity indices varies. Equity index futures offer various benefits that could support the trading strategy of both institutions and self-directed investors, including:

  • Liquidity
  • The ability to sell short without having to borrow securities
  • Capital efficiency relative to ETFs and/or underlying cash positions
  • Possible margin offsets in an equity index spread since open positions are with CME Clearing

CME Group lists equity futures products on several of these recognized benchmark indices with two contract sizes, such as E-mini contracts as well as Micro E-mini contracts, which are 1/10 the size. For more information, visit

Find your solution

Let CME Group help you find a solution to your challenge.

Learn more about spreads using futures with our online course: Futures Spreads Overview

U.S. 2023 Disclaimer  

Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.  

CME Group, the Globe Logo, CME, Globex, E-Mini, CME Direct, CME DataMine and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT is a trademark of the Board of Trade of the City of Chicago, Inc. NYMEX is a trademark of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other trademarks are the property of their respective owners.  

The information within this communication has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. CME Group does not represent that any material or information contained in this communication is appropriate for use or permitted in any jurisdiction or country where such use or distribution would be contrary to any applicable law or regulation.  

Additionally, all examples in this communication are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and superseded by official CME, CBOT, NYMEX and COMEX rules. Current rules should be consulted in all cases concerning contract specifications.  

Copyright © 2023 CME Group Inc. All rights reserved

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2024 CME Group Inc. All rights reserved.