Correlation Between Innovator Equity and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Innovator Equity and Northern Lights 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 Equity and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Innovator Equity Accelerated and Northern Lights, you can compare the effects of market volatilities on Innovator Equity and Northern Lights 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 Equity with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator Equity and Northern Lights.
Diversification Opportunities for Innovator Equity and Northern Lights
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Innovator and Northern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Equity Accelerated and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Innovator Equity 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 Equity Accelerated are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Innovator Equity i.e., Innovator Equity and Northern Lights go up and down completely randomly.
Pair Corralation between Innovator Equity and Northern Lights
Given the investment horizon of 90 days Innovator Equity Accelerated is expected to generate 0.13 times more return on investment than Northern Lights. However, Innovator Equity Accelerated is 7.87 times less risky than Northern Lights. It trades about 0.25 of its potential returns per unit of risk. Northern Lights is currently generating about -0.04 per unit of risk. If you would invest 3,503 in Innovator Equity Accelerated on November 27, 2024 and sell it today you would earn a total of 26.00 from holding Innovator Equity Accelerated or generate 0.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Innovator Equity Accelerated vs. Northern Lights
Performance |
| Timeline |
| Innovator Equity Acc |
| Northern Lights |
Innovator Equity and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Innovator Equity and Northern Lights
The main advantage of trading using opposite Innovator Equity and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovator Equity position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.The idea behind Innovator Equity Accelerated and Northern Lights 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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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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