Correlation Between Avantis Small and ARK Innovation

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

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

Diversification Opportunities for Avantis Small and ARK Innovation

0.47

Correlation Coefficient

Avantis Small  ARK Innovation

Very weak diversification

The 3 months correlation between Avantis and ARK is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF and Avantis Small 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 Avantis Small Cap are associated (or correlated) with ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of Avantis Small i.e., Avantis Small and ARK Innovation go up and down completely randomly.

Pair Corralation between Avantis Small and ARK Innovation

Given the investment horizon of 90 days Avantis Small Cap is expected to generate 0.36 times more return on investment than ARK Innovation. However, Avantis Small Cap is 2.75 times less risky than ARK Innovation. It trades about 0.23 of its potential returns per unit of risk. ARK Innovation ETF is currently generating about 0.06 per unit of risk. If you would invest  9,567  in Avantis Small Cap on October 20, 2024 and sell it today you would earn a total of  365.00  from holding Avantis Small Cap or generate 3.82% return on investment over 90 days.

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

Avantis Small Cap  vs.  ARK Innovation ETF

Avantis Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Avantis Small is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ARK Innovation ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Innovation ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, ARK Innovation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avantis Small and ARK Innovation

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

The idea behind Avantis Small Cap and ARK Innovation ETF 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.