Correlation Between Innovator and Innovator Premium

Can any of the company-specific risk be diversified away by investing in both Innovator and Innovator Premium 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 Innovator Premium 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 Innovator Premium Income, you can compare the effects of market volatilities on Innovator and Innovator Premium 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 Innovator Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and Innovator Premium.

Diversification Opportunities for Innovator and Innovator Premium

0.87

Correlation Coefficient

Innovator  Innovator Premium

Very poor diversification

The 3 months correlation between Innovator and Innovator is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Innovator Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Premium Income 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 Innovator Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Premium Income has no effect on the direction of Innovator i.e., Innovator and Innovator Premium go up and down completely randomly.

Pair Corralation between Innovator and Innovator Premium

Given the investment horizon of 90 days Innovator SP 500 is expected to generate 2.51 times more return on investment than Innovator Premium. However, Innovator is 2.51 times more volatile than Innovator Premium Income. It trades about 0.14 of its potential returns per unit of risk. Innovator Premium Income is currently generating about 0.18 per unit of risk. If you would invest  3,986  in Innovator SP 500 on August 30, 2024 and sell it today you would earn a total of  146.00  from holding Innovator SP 500 or generate 3.66% return on investment over 90 days.

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

Innovator SP 500  vs.  Innovator Premium Income

Innovator SP 500

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Innovator is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Innovator Premium Income

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Premium Income are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Innovator Premium is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Innovator and Innovator Premium

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

The idea behind Innovator SP 500 and Innovator Premium Income 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.