Correlation Between Innovator and Pacer Lunt

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

Diversification Opportunities for Innovator and Pacer Lunt

0.91

Correlation Coefficient

Innovator  Pacer Lunt

Almost no diversification

The 3 months correlation between Innovator and Pacer is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of Innovator i.e., Innovator and Pacer Lunt go up and down completely randomly.

Pair Corralation between Innovator and Pacer Lunt

Given the investment horizon of 90 days Innovator SP 500 is expected to generate 0.37 times more return on investment than Pacer Lunt. However, Innovator SP 500 is 2.68 times less risky than Pacer Lunt. It trades about 0.01 of its potential returns per unit of risk. Pacer Lunt Large is currently generating about -0.02 per unit of risk. If you would invest  4,010  in Innovator SP 500 on December 20, 2024 and sell it today you would earn a total of  7.00  from holding Innovator SP 500 or generate 0.17% return on investment over 90 days.

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

Innovator SP 500  vs.  Pacer Lunt Large

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. 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.

Pacer Lunt Large

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Innovator and Pacer Lunt

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

The idea behind Innovator SP 500 and Pacer Lunt Large 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.