Correlation Between Innovator Russell and Overlay Shares

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

By analyzing existing cross correlation between Innovator Russell 2000 and Overlay Shares Large, you can compare the effects of market volatilities on Innovator Russell and Overlay Shares 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 Russell with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator Russell and Overlay Shares.

Diversification Opportunities for Innovator Russell and Overlay Shares

0.95

Correlation Coefficient

Innovator Russell  Overlay Shares

Almost no diversification

The 3 months correlation between Innovator and Overlay is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Russell 2000 and Overlay Shares Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Large and Innovator Russell 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 Russell 2000 are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Large has no effect on the direction of Innovator Russell i.e., Innovator Russell and Overlay Shares go up and down completely randomly.

Pair Corralation between Innovator Russell and Overlay Shares

Given the investment horizon of 90 days Innovator Russell is expected to generate 1.57 times less return on investment than Overlay Shares. But when comparing it to its historical volatility, Innovator Russell 2000 is 1.56 times less risky than Overlay Shares. It trades about 0.19 of its potential returns per unit of risk. Overlay Shares Large is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,450  in Overlay Shares Large on September 12, 2024 and sell it today you would earn a total of  451.41  from holding Overlay Shares Large or generate 10.14% return on investment over 90 days.

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

Innovator Russell 2000  vs.  Overlay Shares Large

Innovator Russell 2000

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Russell 2000 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Innovator Russell is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Overlay Shares Large

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Large are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Overlay Shares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Innovator Russell and Overlay Shares

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

The idea behind Innovator Russell 2000 and Overlay Shares Large 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.