Correlation Between IShares ESG and Innovator Equity

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

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

Diversification Opportunities for IShares ESG and Innovator Equity

0.58

Correlation Coefficient

IShares ESG  Innovator Equity

Very weak diversification

The 3 months correlation between IShares and Innovator is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Screened and Innovator Equity Accelerated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Acc and IShares ESG 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 iShares ESG Screened are associated (or correlated) with Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Acc has no effect on the direction of IShares ESG i.e., IShares ESG and Innovator Equity go up and down completely randomly.

Pair Corralation between IShares ESG and Innovator Equity

Considering the 90-day investment horizon iShares ESG Screened is expected to under-perform the Innovator Equity. In addition to that, IShares ESG is 2.33 times more volatile than Innovator Equity Accelerated. It trades about -0.27 of its total potential returns per unit of risk. Innovator Equity Accelerated is currently generating about -0.03 per unit of volatility. If you would invest  3,575  in Innovator Equity Accelerated on October 12, 2024 and sell it today you would lose (11.00) from holding Innovator Equity Accelerated or give up 0.31% of portfolio value over 90 days.

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

iShares ESG Screened  vs.  Innovator Equity Accelerated

iShares ESG Screened

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG Screened has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking indicators, IShares ESG is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Innovator Equity Acc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Accelerated are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Innovator Equity 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 IShares ESG and Innovator Equity

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

The idea behind iShares ESG Screened and Innovator Equity Accelerated 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.