Correlation Between IShares Trust and Innovator Equity

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

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

Diversification Opportunities for IShares Trust and Innovator Equity

0.7

Correlation Coefficient

IShares Trust  Innovator Equity

Poor diversification

The 3 months correlation between IShares and Innovator is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Innovator Equity Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Power and IShares 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 iShares Trust are associated (or correlated) with Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Power has no effect on the direction of IShares Trust i.e., IShares Trust and Innovator Equity go up and down completely randomly.

Pair Corralation between IShares Trust and Innovator Equity

Given the investment horizon of 90 days iShares Trust is expected to generate 1.23 times more return on investment than Innovator Equity. However, IShares Trust is 1.23 times more volatile than Innovator Equity Power. It trades about 0.0 of its potential returns per unit of risk. Innovator Equity Power is currently generating about -0.07 per unit of risk. If you would invest  3,052  in iShares Trust on December 30, 2024 and sell it today you would lose (9.00) from holding iShares Trust or give up 0.29% of portfolio value over 90 days.

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

iShares Trust  vs.  Innovator Equity Power

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Innovator Equity Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Trust and Innovator Equity

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

The idea behind iShares Trust and Innovator Equity Power 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.