Correlation Between Innovator and Good Life

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

By analyzing existing cross correlation between Innovator SP 500 and Good Life China, you can compare the effects of market volatilities on Innovator and Good Life 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 Good Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and Good Life.

Diversification Opportunities for Innovator and Good Life

0.0

Correlation Coefficient

Innovator  Good Life

Pay attention - limited upside

The 3 months correlation between Innovator and Good is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Good Life China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Good Life China 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 500 are associated (or correlated) with Good Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Good Life China has no effect on the direction of Innovator i.e., Innovator and Good Life go up and down completely randomly.

Pair Corralation between Innovator and Good Life

Given the investment horizon of 90 days Innovator SP 500 is expected to generate 0.08 times more return on investment than Good Life. However, Innovator SP 500 is 12.57 times less risky than Good Life. It trades about 0.12 of its potential returns per unit of risk. Good Life China is currently generating about -0.05 per unit of risk. If you would invest  3,090  in Innovator SP 500 on October 22, 2024 and sell it today you would earn a total of  623.00  from holding Innovator SP 500 or generate 20.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.49%
Values	Daily Returns

Innovator SP 500  vs.  Good Life China

Innovator SP 500

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Innovator is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Good Life China

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Innovator and Good Life

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

The idea behind Innovator SP 500 and Good Life China 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .