Correlation Between Innovator and Innovator Small

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

Diversification Opportunities for Innovator and Innovator Small

0.89

Correlation Coefficient

Innovator  Innovator Small

Very poor diversification

The 3 months correlation between Innovator and Innovator is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Innovator Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Small Cap has no effect on the direction of Innovator i.e., Innovator and Innovator Small go up and down completely randomly.

Pair Corralation between Innovator and Innovator Small

Given the investment horizon of 90 days Innovator SP 500 is expected to under-perform the Innovator Small. In addition to that, Innovator is 1.32 times more volatile than Innovator Small Cap. It trades about -0.08 of its total potential returns per unit of risk. Innovator Small Cap is currently generating about -0.05 per unit of volatility. If you would invest  2,629  in Innovator Small Cap on December 30, 2024 and sell it today you would lose (33.00) from holding Innovator Small Cap or give up 1.26% of portfolio value over 90 days.

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

Innovator SP 500  vs.  Innovator Small Cap

Innovator SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Small Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Innovator and Innovator Small

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

The idea behind Innovator SP 500 and Innovator Small Cap 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..