Correlation Between Swan Hedged and Innovator Hedged

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

By analyzing existing cross correlation between Swan Hedged Equity and Innovator Hedged Nasdaq 100, you can compare the effects of market volatilities on Swan Hedged and Innovator Hedged 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 Swan Hedged with a short position of Innovator Hedged. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swan Hedged and Innovator Hedged.

Diversification Opportunities for Swan Hedged and Innovator Hedged

0.95

Correlation Coefficient

Swan Hedged  Innovator Hedged

Almost no diversification

The 3 months correlation between Swan and Innovator is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Swan Hedged Equity and Innovator Hedged Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Hedged Nasdaq and Swan Hedged 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 Swan Hedged Equity are associated (or correlated) with Innovator Hedged. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Hedged Nasdaq has no effect on the direction of Swan Hedged i.e., Swan Hedged and Innovator Hedged go up and down completely randomly.

Pair Corralation between Swan Hedged and Innovator Hedged

Given the investment horizon of 90 days Swan Hedged is expected to generate 1.38 times less return on investment than Innovator Hedged. But when comparing it to its historical volatility, Swan Hedged Equity is 1.36 times less risky than Innovator Hedged. It trades about 0.33 of its potential returns per unit of risk. Innovator Hedged Nasdaq 100 is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  2,546  in Innovator Hedged Nasdaq 100 on September 5, 2024 and sell it today you would earn a total of  123.00  from holding Innovator Hedged Nasdaq 100 or generate 4.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Swan Hedged Equity  vs.  Innovator Hedged Nasdaq 100

Swan Hedged Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Swan Hedged Equity are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Swan Hedged is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Innovator Hedged Nasdaq

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Hedged Nasdaq 100 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Innovator Hedged may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Swan Hedged and Innovator Hedged

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

The idea behind Swan Hedged Equity and Innovator Hedged Nasdaq 100 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.