Correlation Between Overlay Shares and Innovator Russell

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

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

Diversification Opportunities for Overlay Shares and Innovator Russell

0.44

Correlation Coefficient

Overlay Shares  Innovator Russell

Very weak diversification

The 3 months correlation between Overlay and Innovator is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Municipal and Innovator Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Russell 2000 and Overlay Shares 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 Overlay Shares Municipal are associated (or correlated) with Innovator Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Russell 2000 has no effect on the direction of Overlay Shares i.e., Overlay Shares and Innovator Russell go up and down completely randomly.

Pair Corralation between Overlay Shares and Innovator Russell

Considering the 90-day investment horizon Overlay Shares is expected to generate 4.93 times less return on investment than Innovator Russell. But when comparing it to its historical volatility, Overlay Shares Municipal is 1.9 times less risky than Innovator Russell. It trades about 0.07 of its potential returns per unit of risk. Innovator Russell 2000 is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,842  in Innovator Russell 2000 on September 12, 2024 and sell it today you would earn a total of  181.41  from holding Innovator Russell 2000 or generate 6.38% return on investment over 90 days.

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

Overlay Shares Municipal  vs.  Innovator Russell 2000

Overlay Shares Municipal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Municipal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Overlay Shares is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Overlay Shares and Innovator Russell

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

The idea behind Overlay Shares Municipal and Innovator Russell 2000 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.