Correlation Between Innovator Growth and First Trust

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

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

Diversification Opportunities for Innovator Growth and First Trust

0.79

Correlation Coefficient

Innovator Growth  First Trust

Poor diversification

The 3 months correlation between Innovator and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Growth 100 Power and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe and Innovator Growth 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 Growth 100 Power are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Cboe has no effect on the direction of Innovator Growth i.e., Innovator Growth and First Trust go up and down completely randomly.

Pair Corralation between Innovator Growth and First Trust

Given the investment horizon of 90 days Innovator Growth 100 Power is expected to generate 1.53 times more return on investment than First Trust. However, Innovator Growth is 1.53 times more volatile than First Trust Cboe. It trades about 0.21 of its potential returns per unit of risk. First Trust Cboe is currently generating about 0.21 per unit of risk. If you would invest  2,457  in Innovator Growth 100 Power on September 15, 2024 and sell it today you would earn a total of  147.00  from holding Innovator Growth 100 Power or generate 5.98% return on investment over 90 days.

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

Innovator Growth 100 Power  vs.  First Trust Cboe

Innovator Growth 100

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Innovator Growth 100 Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Innovator Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Cboe

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust 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 Innovator Growth and First Trust

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

The idea behind Innovator Growth 100 Power and First Trust Cboe 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.