Correlation Between Innovator and Strategy Shares

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

By analyzing existing cross correlation between Innovator SP 500 and Strategy Shares NewfoundReSolve, you can compare the effects of market volatilities on Innovator and Strategy Shares 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 Strategy Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and Strategy Shares.

Diversification Opportunities for Innovator and Strategy Shares

0.97

Correlation Coefficient

Innovator  Strategy Shares

Almost no diversification

The 3 months correlation between Innovator and Strategy is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Strategy Shares NewfoundReSolv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategy Shares Newf 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 SP 500 are associated (or correlated) with Strategy Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategy Shares Newf has no effect on the direction of Innovator i.e., Innovator and Strategy Shares go up and down completely randomly.

Pair Corralation between Innovator and Strategy Shares

Given the investment horizon of 90 days Innovator SP 500 is expected to generate 0.77 times more return on investment than Strategy Shares. However, Innovator SP 500 is 1.29 times less risky than Strategy Shares. It trades about -0.06 of its potential returns per unit of risk. Strategy Shares NewfoundReSolve is currently generating about -0.07 per unit of risk. If you would invest  3,105  in Innovator SP 500 on December 23, 2024 and sell it today you would lose (86.00) from holding Innovator SP 500 or give up 2.77% of portfolio value over 90 days.

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

Innovator SP 500  vs.  Strategy Shares NewfoundReSolv

Innovator SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Innovator is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Strategy Shares Newf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategy Shares NewfoundReSolve has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Strategy Shares is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Innovator and Strategy Shares

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

The idea behind Innovator SP 500 and Strategy Shares NewfoundReSolve 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.