Correlation Between Innovator and Inspire International

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

Diversification Opportunities for Innovator and Inspire International

0.12

Correlation Coefficient

Innovator  Inspire International

Average diversification

The 3 months correlation between Innovator and Inspire is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and Inspire International ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire International ESG 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 Inspire International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire International ESG has no effect on the direction of Innovator i.e., Innovator and Inspire International go up and down completely randomly.

Pair Corralation between Innovator and Inspire International

Given the investment horizon of 90 days Innovator SP 500 is expected to under-perform the Inspire International. But the etf apears to be less risky and, when comparing its historical volatility, Innovator SP 500 is 1.99 times less risky than Inspire International. The etf trades about -0.02 of its potential returns per unit of risk. The Inspire International ESG is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,891  in Inspire International ESG on December 30, 2024 and sell it today you would earn a total of  194.00  from holding Inspire International ESG or generate 6.71% return on investment over 90 days.

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

Innovator SP 500  vs.  Inspire International ESG

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.

Inspire International ESG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire International ESG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward-looking indicators, Inspire International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Innovator and Inspire International

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

The idea behind Innovator SP 500 and Inspire International ESG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.