Correlation Between Simplify Equity and Innovator

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

By analyzing existing cross correlation between Simplify Equity PLUS and Innovator 20 Year, you can compare the effects of market volatilities on Simplify Equity and Innovator 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 Simplify Equity with a short position of Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simplify Equity and Innovator.

Diversification Opportunities for Simplify Equity and Innovator

0.59

Correlation Coefficient

Simplify Equity  Innovator

Very weak diversification

The 3 months correlation between Simplify and Innovator is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Equity PLUS and Innovator 20 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator 20 Year and Simplify Equity 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 Simplify Equity PLUS are associated (or correlated) with Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator 20 Year has no effect on the direction of Simplify Equity i.e., Simplify Equity and Innovator go up and down completely randomly.

Pair Corralation between Simplify Equity and Innovator

Given the investment horizon of 90 days Simplify Equity PLUS is expected to generate 2.63 times more return on investment than Innovator. However, Simplify Equity is 2.63 times more volatile than Innovator 20 Year. It trades about -0.02 of its potential returns per unit of risk. Innovator 20 Year is currently generating about -0.12 per unit of risk. If you would invest  4,289  in Simplify Equity PLUS on October 18, 2024 and sell it today you would lose (106.00) from holding Simplify Equity PLUS or give up 2.47% of portfolio value over 90 days.

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

Simplify Equity PLUS  vs.  Innovator 20 Year

Simplify Equity PLUS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Innovator 20 Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovator 20 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking indicators, Innovator is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Simplify Equity and Innovator

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

The idea behind Simplify Equity PLUS and Innovator 20 Year 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.