Correlation Between Innovator and Simplify Equity

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

Diversification Opportunities for Innovator and Simplify Equity

-0.05

Correlation Coefficient

Innovator  Simplify Equity

Good diversification

The 3 months correlation between Innovator and Simplify is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Innovator 20 Year and Simplify Equity PLUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Equity PLUS 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 Simplify Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Equity PLUS has no effect on the direction of Innovator i.e., Innovator and Simplify Equity go up and down completely randomly.

Pair Corralation between Innovator and Simplify Equity

Given the investment horizon of 90 days Innovator is expected to generate 101.73 times less return on investment than Simplify Equity. But when comparing it to its historical volatility, Innovator 20 Year is 2.19 times less risky than Simplify Equity. It trades about 0.0 of its potential returns per unit of risk. Simplify Equity PLUS is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,111  in Simplify Equity PLUS on October 3, 2024 and sell it today you would earn a total of  982.00  from holding Simplify Equity PLUS or generate 31.57% return on investment over 90 days.

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

Innovator 20 Year  vs.  Simplify Equity PLUS

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.

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.

Pair Trading with Innovator and Simplify Equity

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

The idea behind Innovator 20 Year and Simplify Equity PLUS 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.