Correlation Between Innovator and Innovator Equity

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

Diversification Opportunities for Innovator and Innovator Equity

0.97

Correlation Coefficient

Innovator  Innovator Equity

Almost no diversification

The 3 months correlation between Innovator and Innovator is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Innovator Equity Defined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Defined 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 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 Defined has no effect on the direction of Innovator i.e., Innovator and Innovator Equity go up and down completely randomly.

Pair Corralation between Innovator and Innovator Equity

Given the investment horizon of 90 days Innovator SP 500 is expected to under-perform the Innovator Equity. In addition to that, Innovator is 2.26 times more volatile than Innovator Equity Defined. It trades about -0.07 of its total potential returns per unit of risk. Innovator Equity Defined is currently generating about -0.05 per unit of volatility. If you would invest  2,510  in Innovator Equity Defined on December 30, 2024 and sell it today you would lose (18.00) from holding Innovator Equity Defined or give up 0.72% of portfolio value over 90 days.

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

Innovator SP 500  vs.  Innovator Equity Defined

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 technical and fundamental indicators, Innovator is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Innovator Equity Defined

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator Equity Defined has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Innovator Equity is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Innovator and Innovator Equity

The main advantage of trading using opposite Innovator and Innovator Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovator 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 Innovator SP 500 and Innovator Equity Defined 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.