Correlation Between Innovator and WisdomTree Managed

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

By analyzing existing cross correlation between Innovator SP 500 and WisdomTree Managed Futures, you can compare the effects of market volatilities on Innovator and WisdomTree Managed 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 with a short position of WisdomTree Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator and WisdomTree Managed.

Diversification Opportunities for Innovator and WisdomTree Managed

0.61

Correlation Coefficient

Innovator  WisdomTree Managed

Poor diversification

The 3 months correlation between Innovator and WisdomTree is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Innovator SP 500 and WisdomTree Managed Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Managed and Innovator 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 SP 500 are associated (or correlated) with WisdomTree Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Managed has no effect on the direction of Innovator i.e., Innovator and WisdomTree Managed go up and down completely randomly.

Pair Corralation between Innovator and WisdomTree Managed

Given the investment horizon of 90 days Innovator SP 500 is expected to generate 0.44 times more return on investment than WisdomTree Managed. However, Innovator SP 500 is 2.26 times less risky than WisdomTree Managed. It trades about 0.15 of its potential returns per unit of risk. WisdomTree Managed Futures is currently generating about 0.05 per unit of risk. If you would invest  3,344  in Innovator SP 500 on August 30, 2024 and sell it today you would earn a total of  131.00  from holding Innovator SP 500 or generate 3.92% return on investment over 90 days.

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

Innovator SP 500  vs.  WisdomTree Managed Futures

Innovator SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Innovator is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree Managed

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Managed Futures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, WisdomTree Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Innovator and WisdomTree Managed

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

The idea behind Innovator SP 500 and WisdomTree Managed Futures 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.