Correlation Between Innovator ETFs and First Trust

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

By analyzing existing cross correlation between Innovator ETFs Trust and First Trust RBA, you can compare the effects of market volatilities on Innovator ETFs and First Trust 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 ETFs with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator ETFs and First Trust.

Diversification Opportunities for Innovator ETFs and First Trust

0.04

Correlation Coefficient

Innovator ETFs  First Trust

Significant diversification

The 3 months correlation between Innovator and First is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Innovator ETFs Trust and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and Innovator ETFs 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 ETFs Trust are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust RBA has no effect on the direction of Innovator ETFs i.e., Innovator ETFs and First Trust go up and down completely randomly.

Pair Corralation between Innovator ETFs and First Trust

Given the investment horizon of 90 days Innovator ETFs Trust is expected to generate 0.54 times more return on investment than First Trust. However, Innovator ETFs Trust is 1.87 times less risky than First Trust. It trades about -0.05 of its potential returns per unit of risk. First Trust RBA is currently generating about -0.21 per unit of risk. If you would invest  2,958  in Innovator ETFs Trust on December 5, 2024 and sell it today you would lose (74.00) from holding Innovator ETFs Trust or give up 2.5% of portfolio value over 90 days.

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

Innovator ETFs Trust  vs.  First Trust RBA

Innovator ETFs Trust

Risk-Adjusted Performance

Very Weak

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

First Trust RBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust RBA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Pair Trading with Innovator ETFs and First Trust

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

The idea behind Innovator ETFs Trust and First Trust RBA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.