Correlation Between ARK Innovation and Global X

Can any of the company-specific risk be diversified away by investing in both ARK Innovation and Global X 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 Global X 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 Global X NASDAQ, you can compare the effects of market volatilities on ARK Innovation and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Innovation and Global X.

Diversification Opportunities for ARK Innovation and Global X

0.93

Correlation Coefficient

ARK Innovation  Global X

Almost no diversification

The 3 months correlation between ARK and Global is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ARK Innovation ETF and Global X NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X NASDAQ 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X NASDAQ has no effect on the direction of ARK Innovation i.e., ARK Innovation and Global X go up and down completely randomly.

Pair Corralation between ARK Innovation and Global X

Given the investment horizon of 90 days ARK Innovation ETF is expected to generate 3.86 times more return on investment than Global X. However, ARK Innovation is 3.86 times more volatile than Global X NASDAQ. It trades about 0.36 of its potential returns per unit of risk. Global X NASDAQ is currently generating about 0.56 per unit of risk. If you would invest  5,346  in ARK Innovation ETF on September 16, 2024 and sell it today you would earn a total of  787.00  from holding ARK Innovation ETF or generate 14.72% 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.  Global X NASDAQ

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.

Global X NASDAQ

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X NASDAQ are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ARK Innovation and Global X

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

The idea behind ARK Innovation ETF and Global X NASDAQ 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.