Correlation Between Innovator Equity and First Trust

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

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

Diversification Opportunities for Innovator Equity and First Trust

0.97

Correlation Coefficient

Innovator Equity  First Trust

Almost no diversification

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

Pair Corralation between Innovator Equity and First Trust

Given the investment horizon of 90 days Innovator Equity Ultra is expected to generate 0.87 times more return on investment than First Trust. However, Innovator Equity Ultra is 1.15 times less risky than First Trust. It trades about 0.15 of its potential returns per unit of risk. First Trust Cboe is currently generating about 0.12 per unit of risk. If you would invest  3,356  in Innovator Equity Ultra on September 14, 2024 and sell it today you would earn a total of  236.00  from holding Innovator Equity Ultra or generate 7.03% return on investment over 90 days.

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

Innovator Equity Ultra  vs.  First Trust Cboe

Innovator Equity Ultra

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Ultra are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Innovator Equity is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Cboe

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Innovator Equity and First Trust

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

The idea behind Innovator Equity Ultra and First Trust Cboe 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.