Correlation Between Innovator Hedged and Alpha Architect

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

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

Diversification Opportunities for Innovator Hedged and Alpha Architect

0.86

Correlation Coefficient

Innovator Hedged  Alpha Architect

Very poor diversification

The 3 months correlation between Innovator and Alpha is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Hedged Nasdaq 100 and Alpha Architect Quantitative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Quan and Innovator 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 Innovator Hedged Nasdaq 100 are associated (or correlated) with Alpha Architect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Architect Quan has no effect on the direction of Innovator Hedged i.e., Innovator Hedged and Alpha Architect go up and down completely randomly.

Pair Corralation between Innovator Hedged and Alpha Architect

Given the investment horizon of 90 days Innovator Hedged is expected to generate 1.18 times less return on investment than Alpha Architect. But when comparing it to its historical volatility, Innovator Hedged Nasdaq 100 is 1.76 times less risky than Alpha Architect. It trades about 0.23 of its potential returns per unit of risk. Alpha Architect Quantitative is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,133  in Alpha Architect Quantitative on September 14, 2024 and sell it today you would earn a total of  670.00  from holding Alpha Architect Quantitative or generate 10.92% return on investment over 90 days.

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

Innovator Hedged Nasdaq 100  vs.  Alpha Architect Quantitative

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 unfluctuating fundamental indicators, Innovator Hedged may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alpha Architect Quan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect Quantitative are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Alpha Architect may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Innovator Hedged and Alpha Architect

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

The idea behind Innovator Hedged Nasdaq 100 and Alpha Architect Quantitative 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.