Correlation Between First Trust and Innovator

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

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

Diversification Opportunities for First Trust and Innovator

0.52

Correlation Coefficient

First Trust  Innovator

Very weak diversification

The 3 months correlation between First and Innovator is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and Innovator SP Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP Investment 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 Preferred are associated (or correlated) with Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP Investment has no effect on the direction of First Trust i.e., First Trust and Innovator go up and down completely randomly.

Pair Corralation between First Trust and Innovator

Considering the 90-day investment horizon First Trust Preferred is expected to generate 0.35 times more return on investment than Innovator. However, First Trust Preferred is 2.89 times less risky than Innovator. It trades about 0.05 of its potential returns per unit of risk. Innovator SP Investment is currently generating about -0.02 per unit of risk. If you would invest  1,746  in First Trust Preferred on December 29, 2024 and sell it today you would earn a total of  13.00  from holding First Trust Preferred or generate 0.74% return on investment over 90 days.

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

First Trust Preferred  vs.  Innovator SP Investment

First Trust Preferred

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with First Trust and Innovator

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

The idea behind First Trust Preferred and Innovator SP Investment 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.