Correlation Between Volatility Shares and ARK Innovation

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

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

Diversification Opportunities for Volatility Shares and ARK Innovation

0.83

Correlation Coefficient

Volatility Shares  ARK Innovation

Very poor diversification

The 3 months correlation between Volatility and ARK is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust 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 Volatility Shares 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 Volatility Shares Trust 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 Volatility Shares i.e., Volatility Shares and ARK Innovation go up and down completely randomly.

Pair Corralation between Volatility Shares and ARK Innovation

Given the investment horizon of 90 days Volatility Shares Trust is expected to under-perform the ARK Innovation. In addition to that, Volatility Shares is 2.05 times more volatile than ARK Innovation ETF. It trades about -0.07 of its total potential returns per unit of risk. ARK Innovation ETF is currently generating about -0.08 per unit of volatility. If you would invest  5,761  in ARK Innovation ETF on December 29, 2024 and sell it today you would lose (891.00) from holding ARK Innovation ETF or give up 15.47% of portfolio value over 90 days.

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

Volatility Shares Trust  vs.  ARK Innovation ETF

Volatility Shares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Volatility Shares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

ARK Innovation ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARK Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Pair Trading with Volatility Shares and ARK Innovation

The main advantage of trading using opposite Volatility Shares and ARK Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volatility Shares 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 Volatility Shares Trust 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.