Correlation Between Innovator MSCI and Innovator Russell

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

By analyzing existing cross correlation between Innovator MSCI EAFE and Innovator Russell 2000, you can compare the effects of market volatilities on Innovator MSCI and Innovator Russell 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 MSCI with a short position of Innovator Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator MSCI and Innovator Russell.

Diversification Opportunities for Innovator MSCI and Innovator Russell

-0.61

Correlation Coefficient

Innovator MSCI  Innovator Russell

Excellent diversification

The 3 months correlation between Innovator and Innovator is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Innovator MSCI EAFE and Innovator Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Russell 2000 and Innovator MSCI 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 MSCI EAFE are associated (or correlated) with Innovator Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Russell 2000 has no effect on the direction of Innovator MSCI i.e., Innovator MSCI and Innovator Russell go up and down completely randomly.

Pair Corralation between Innovator MSCI and Innovator Russell

Given the investment horizon of 90 days Innovator MSCI EAFE is expected to generate 0.91 times more return on investment than Innovator Russell. However, Innovator MSCI EAFE is 1.1 times less risky than Innovator Russell. It trades about 0.18 of its potential returns per unit of risk. Innovator Russell 2000 is currently generating about -0.08 per unit of risk. If you would invest  2,668  in Innovator MSCI EAFE on December 21, 2024 and sell it today you would earn a total of  171.20  from holding Innovator MSCI EAFE or generate 6.42% return on investment over 90 days.

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

Innovator MSCI EAFE  vs.  Innovator Russell 2000

Innovator MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator MSCI EAFE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Innovator MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Innovator Russell 2000

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Innovator Russell is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Innovator MSCI and Innovator Russell

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

The idea behind Innovator MSCI EAFE and Innovator Russell 2000 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.