Correlation Between MicroSectors FANG and Innovator
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Innovator 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 MicroSectors FANG and Innovator into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and Innovator SP 500, you can compare the effects of market volatilities on MicroSectors FANG and Innovator 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 MicroSectors FANG with a short position of Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Innovator.
Diversification Opportunities for MicroSectors FANG and Innovator
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between MicroSectors and Innovator is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Innovator go up and down completely randomly.
Pair Corralation between MicroSectors FANG and Innovator
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 11.4 times more return on investment than Innovator. However, MicroSectors FANG is 11.4 times more volatile than Innovator SP 500. It trades about 0.19 of its potential returns per unit of risk. Innovator SP 500 is currently generating about 0.14 per unit of risk. If you would invest 43,213 in MicroSectors FANG Index on August 24, 2024 and sell it today you would earn a total of 7,429 from holding MicroSectors FANG Index or generate 17.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. Innovator SP 500
Performance |
| Timeline |
| MicroSectors FANG Index |
| Innovator SP 500 |
MicroSectors FANG and Innovator Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and Innovator
The main advantage of trading using opposite MicroSectors FANG and Innovator positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Innovator 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 will offset losses from the drop in Innovator's long position.| MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
| Innovator vs. Innovator SP 500 | Innovator vs. Innovator Equity Ultra | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 |
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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