Correlation Between Dimensional International and Innovator Equity

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

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

Diversification Opportunities for Dimensional International and Innovator Equity

-0.61

Correlation Coefficient

Dimensional International  Innovator Equity

Excellent diversification

The 3 months correlation between Dimensional and Innovator is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and Innovator Equity Defined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Defined and Dimensional International 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 Dimensional International High 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 Defined has no effect on the direction of Dimensional International i.e., Dimensional International and Innovator Equity go up and down completely randomly.

Pair Corralation between Dimensional International and Innovator Equity

Given the investment horizon of 90 days Dimensional International High is expected to under-perform the Innovator Equity. In addition to that, Dimensional International is 5.14 times more volatile than Innovator Equity Defined. It trades about -0.03 of its total potential returns per unit of risk. Innovator Equity Defined is currently generating about 0.27 per unit of volatility. If you would invest  2,650  in Innovator Equity Defined on September 12, 2024 and sell it today you would earn a total of  69.00  from holding Innovator Equity Defined or generate 2.6% return on investment over 90 days.

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

Dimensional International High  vs.  Innovator Equity Defined

Dimensional International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Innovator Equity Defined

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Defined are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking indicators, Innovator Equity is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Dimensional International and Innovator Equity

The main advantage of trading using opposite Dimensional International and Innovator Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International 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 Dimensional International High and Innovator Equity Defined 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.