Correlation Between Innovator and IShares 25

Can any of the company-specific risk be diversified away by investing in both Innovator and IShares 25 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 IShares 25 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Innovator 20 Year and iShares 25 Year, you can compare the effects of market volatilities on Innovator and IShares 25 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 IShares 25. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and IShares 25.

Diversification Opportunities for Innovator and IShares 25

0.96

Correlation Coefficient

Innovator  IShares 25

Almost no diversification

The 3 months correlation between Innovator and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Innovator 20 Year and iShares 25 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 25 Year 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 20 Year are associated (or correlated) with IShares 25. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 25 Year has no effect on the direction of Innovator i.e., Innovator and IShares 25 go up and down completely randomly.

Pair Corralation between Innovator and IShares 25

Given the investment horizon of 90 days Innovator is expected to generate 1.15 times less return on investment than IShares 25. But when comparing it to its historical volatility, Innovator 20 Year is 2.45 times less risky than IShares 25. It trades about 0.06 of its potential returns per unit of risk. iShares 25 Year is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  979.00  in iShares 25 Year on December 27, 2024 and sell it today you would earn a total of  17.00  from holding iShares 25 Year or generate 1.74% return on investment over 90 days.

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

Innovator 20 Year  vs.  iShares 25 Year

Innovator 20 Year

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator 20 Year are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

iShares 25 Year

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 25 Year are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares 25 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Innovator and IShares 25

The main advantage of trading using opposite Innovator and IShares 25 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovator position performs unexpectedly, IShares 25 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 IShares 25 will offset losses from the drop in IShares 25's long position.

The idea behind Innovator 20 Year and iShares 25 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.