Correlation Between First Trust and Innovator Equity

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

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

Diversification Opportunities for First Trust and Innovator Equity

0.99

Correlation Coefficient

First Trust  Innovator Equity

No risk reduction

The 3 months correlation between First and Innovator is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded 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 First Trust 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 First Trust Exchange Traded 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 First Trust i.e., First Trust and Innovator Equity go up and down completely randomly.

Pair Corralation between First Trust and Innovator Equity

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 1.38 times more return on investment than Innovator Equity. However, First Trust is 1.38 times more volatile than Innovator Equity Defined. It trades about 0.2 of its potential returns per unit of risk. Innovator Equity Defined is currently generating about 0.23 per unit of risk. If you would invest  4,463  in First Trust Exchange Traded on September 23, 2024 and sell it today you would earn a total of  109.00  from holding First Trust Exchange Traded or generate 2.44% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  Innovator Equity Defined

First Trust Exchange

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Innovator Equity Defined

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Defined are ranked lower than 18 (%) 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and Innovator Equity

The main advantage of trading using opposite First Trust and Innovator Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Exchange Traded 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.