Correlation Between SOFR and Innovator Long

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

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

Diversification Opportunities for SOFR and Innovator Long

-0.82

Correlation Coefficient

SOFR  Innovator Long

Pay attention - limited upside

The 3 months correlation between SOFR and Innovator is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding SOFR and Innovator Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Long Term and SOFR 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 SOFR are associated (or correlated) with Innovator Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Long Term has no effect on the direction of SOFR i.e., SOFR and Innovator Long go up and down completely randomly.

Pair Corralation between SOFR and Innovator Long

Given the investment horizon of 90 days SOFR is expected to generate 0.11 times more return on investment than Innovator Long. However, SOFR is 8.88 times less risky than Innovator Long. It trades about 0.49 of its potential returns per unit of risk. Innovator Long Term is currently generating about -0.09 per unit of risk. If you would invest  9,972  in SOFR on September 23, 2024 and sell it today you would earn a total of  78.00  from holding SOFR or generate 0.78% return on investment over 90 days.

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

SOFR  vs.  Innovator Long Term

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Innovator Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovator Long Term has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking indicators, Innovator Long is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SOFR and Innovator Long

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

The idea behind SOFR and Innovator Long Term 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.