Correlation Between ARK Innovation and Avantis Small

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

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

Diversification Opportunities for ARK Innovation and Avantis Small

0.91

Correlation Coefficient

ARK Innovation  Avantis Small

Almost no diversification

The 3 months correlation between ARK and Avantis is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding ARK Innovation ETF and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap and ARK Innovation 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 ARK Innovation ETF are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of ARK Innovation i.e., ARK Innovation and Avantis Small go up and down completely randomly.

Pair Corralation between ARK Innovation and Avantis Small

Given the investment horizon of 90 days ARK Innovation ETF is expected to generate 1.68 times more return on investment than Avantis Small. However, ARK Innovation is 1.68 times more volatile than Avantis Small Cap. It trades about 0.21 of its potential returns per unit of risk. Avantis Small Cap is currently generating about 0.11 per unit of risk. If you would invest  4,569  in ARK Innovation ETF on September 16, 2024 and sell it today you would earn a total of  1,564  from holding ARK Innovation ETF or generate 34.23% return on investment over 90 days.

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

ARK Innovation ETF  vs.  Avantis Small Cap

ARK Innovation ETF

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Innovation ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking signals, ARK Innovation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Avantis Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Avantis Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ARK Innovation and Avantis Small

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

The idea behind ARK Innovation ETF and Avantis Small Cap 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.