Correlation Between Innovator and SPDR ICE

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

By analyzing existing cross correlation between Innovator SP Investment and SPDR ICE Preferred, you can compare the effects of market volatilities on Innovator and SPDR ICE 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 Innovator with a short position of SPDR ICE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and SPDR ICE.

Diversification Opportunities for Innovator and SPDR ICE

0.74

Correlation Coefficient

Innovator  SPDR ICE

Poor diversification

The 3 months correlation between Innovator and SPDR is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP Investment and SPDR ICE Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR ICE Preferred and Innovator 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 Innovator SP Investment are associated (or correlated) with SPDR ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR ICE Preferred has no effect on the direction of Innovator i.e., Innovator and SPDR ICE go up and down completely randomly.

Pair Corralation between Innovator and SPDR ICE

Given the investment horizon of 90 days Innovator SP Investment is expected to under-perform the SPDR ICE. In addition to that, Innovator is 1.14 times more volatile than SPDR ICE Preferred. It trades about 0.0 of its total potential returns per unit of risk. SPDR ICE Preferred is currently generating about 0.03 per unit of volatility. If you would invest  3,277  in SPDR ICE Preferred on December 19, 2024 and sell it today you would earn a total of  31.00  from holding SPDR ICE Preferred or generate 0.95% return on investment over 90 days.

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

Innovator SP Investment  vs.  SPDR ICE Preferred

Innovator SP Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator SP Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Innovator is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR ICE Preferred

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR ICE Preferred are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SPDR ICE is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Innovator and SPDR ICE

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

The idea behind Innovator SP Investment and SPDR ICE Preferred 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.