Correlation Between First Trust and Innovator ETFs

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

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

Diversification Opportunities for First Trust and Innovator ETFs

-0.28

Correlation Coefficient

First Trust  Innovator ETFs

Very good diversification

The 3 months correlation between First and Innovator is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe and Innovator ETFs Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator ETFs Trust and First 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 First Trust Cboe are associated (or correlated) with Innovator ETFs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator ETFs Trust has no effect on the direction of First Trust i.e., First Trust and Innovator ETFs go up and down completely randomly.

Pair Corralation between First Trust and Innovator ETFs

Given the investment horizon of 90 days First Trust Cboe is expected to under-perform the Innovator ETFs. In addition to that, First Trust is 1.13 times more volatile than Innovator ETFs Trust. It trades about -0.06 of its total potential returns per unit of risk. Innovator ETFs Trust is currently generating about 0.17 per unit of volatility. If you would invest  2,665  in Innovator ETFs Trust on December 26, 2024 and sell it today you would earn a total of  158.00  from holding Innovator ETFs Trust or generate 5.93% return on investment over 90 days.

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

First Trust Cboe  vs.  Innovator ETFs Trust

First Trust Cboe

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Cboe has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Innovator ETFs Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator ETFs Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Innovator ETFs is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Innovator ETFs

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

The idea behind First Trust Cboe and Innovator ETFs Trust 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.