Correlation Between First Trust and Innovator Russell
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Innovator Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Cboe and Innovator Russell 2000, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Innovator Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Innovator Russell.
Diversification Opportunities for First Trust and Innovator Russell
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Innovator is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe 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 First Trust 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 First Trust Cboe 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 First Trust i.e., First Trust and Innovator Russell go up and down completely randomly.
Pair Corralation between First Trust and Innovator Russell
Given the investment horizon of 90 days First Trust is expected to generate 1.65 times less return on investment than Innovator Russell. But when comparing it to its historical volatility, First Trust Cboe is 1.9 times less risky than Innovator Russell. It trades about 0.13 of its potential returns per unit of risk. Innovator Russell 2000 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,510 in Innovator Russell 2000 on August 25, 2024 and sell it today you would earn a total of 409.00 from holding Innovator Russell 2000 or generate 11.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Cboe vs. Innovator Russell 2000
Performance |
| Timeline |
| First Trust Cboe |
| Innovator Russell 2000 |
First Trust and Innovator Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Innovator Russell
The main advantage of trading using opposite First Trust and Innovator Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. FT Cboe Vest | First Trust vs. First Trust Exchange Traded | First Trust vs. FT Cboe Vest | First Trust vs. FT Cboe Vest |
| Innovator Russell vs. First Trust Cboe | Innovator Russell vs. FT Cboe Vest | Innovator Russell vs. Innovator SP 500 | Innovator Russell vs. Innovator Equity Power |
Check out your portfolio center.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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