Correlation Between Tidal Trust and Innovator Equity

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

By analyzing existing cross correlation between Tidal Trust II and Innovator Equity Premium, you can compare the effects of market volatilities on Tidal Trust and Innovator Equity 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 Tidal Trust with a short position of Innovator Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tidal Trust and Innovator Equity.

Diversification Opportunities for Tidal Trust and Innovator Equity

-0.33

Correlation Coefficient

Tidal Trust  Innovator Equity

Very good diversification

The 3 months correlation between Tidal and Innovator is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Tidal Trust II and Innovator Equity Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Premium and Tidal 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 Tidal Trust II are associated (or correlated) with Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Premium has no effect on the direction of Tidal Trust i.e., Tidal Trust and Innovator Equity go up and down completely randomly.

Pair Corralation between Tidal Trust and Innovator Equity

Given the investment horizon of 90 days Tidal Trust II is expected to generate 17.82 times more return on investment than Innovator Equity. However, Tidal Trust is 17.82 times more volatile than Innovator Equity Premium. It trades about 0.05 of its potential returns per unit of risk. Innovator Equity Premium is currently generating about 0.28 per unit of risk. If you would invest  2,076  in Tidal Trust II on August 30, 2024 and sell it today you would earn a total of  79.00  from holding Tidal Trust II or generate 3.81% return on investment over 90 days.

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

Tidal Trust II  vs.  Innovator Equity Premium

Tidal Trust II

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tidal Trust II are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Tidal Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Innovator Equity Premium

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Premium are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Innovator Equity is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Tidal Trust and Innovator Equity

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

The idea behind Tidal Trust II and Innovator Equity Premium 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.