Correlation Between Innovator Long and Small Cap

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

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

Diversification Opportunities for Innovator Long and Small Cap

0.24

Correlation Coefficient

Innovator Long  Small Cap

Modest diversification

The 3 months correlation between Innovator and Small is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Long Term and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Innovator Long 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 Long Term are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Innovator Long i.e., Innovator Long and Small Cap go up and down completely randomly.

Pair Corralation between Innovator Long and Small Cap

Given the investment horizon of 90 days Innovator Long Term is expected to under-perform the Small Cap. But the etf apears to be less risky and, when comparing its historical volatility, Innovator Long Term is 2.16 times less risky than Small Cap. The etf trades about 0.0 of its potential returns per unit of risk. The Small Cap Core is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,250  in Small Cap Core on October 5, 2024 and sell it today you would lose (51.00) from holding Small Cap Core or give up 4.08% of portfolio value over 90 days.

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

Innovator Long Term  vs.  Small Cap Core

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Innovator Long and Small Cap

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

The idea behind Innovator Long Term and Small Cap Core 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.