Correlation Between Innovator Lunt and Flexshares Global

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Can any of the company-specific risk be diversified away by investing in both Innovator Lunt and Flexshares Global 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 Lunt and Flexshares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Innovator Lunt Low and Flexshares Global Broad, you can compare the effects of market volatilities on Innovator Lunt and Flexshares Global 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 Lunt with a short position of Flexshares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator Lunt and Flexshares Global.

Diversification Opportunities for Innovator Lunt and Flexshares Global

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Innovator and Flexshares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Lunt Low and Flexshares Global Broad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexshares Global Broad and Innovator Lunt 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 Lunt Low are associated (or correlated) with Flexshares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexshares Global Broad has no effect on the direction of Innovator Lunt i.e., Innovator Lunt and Flexshares Global go up and down completely randomly.

Pair Corralation between Innovator Lunt and Flexshares Global

Given the investment horizon of 90 days Innovator Lunt Low is expected to generate 0.55 times more return on investment than Flexshares Global. However, Innovator Lunt Low is 1.82 times less risky than Flexshares Global. It trades about -0.29 of its potential returns per unit of risk. Flexshares Global Broad is currently generating about -0.4 per unit of risk. If you would invest  3,412  in Innovator Lunt Low on July 3, 2022 and sell it today you would lose (161.00)  from holding Innovator Lunt Low or give up 4.72% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Innovator Lunt Low  vs.  Flexshares Global Broad

 Performance (%) 
       Timeline  
Innovator Lunt Low 
Innovator Performance
0 of 100
Over the last 90 days Innovator Lunt Low has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Innovator Lunt is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Innovator Price Channel

Flexshares Global Broad 
Flexshares Performance
0 of 100
Over the last 90 days Flexshares Global Broad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Flexshares Price Channel

Innovator Lunt and Flexshares Global Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Innovator Lunt and Flexshares Global

The main advantage of trading using opposite Innovator Lunt and Flexshares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovator Lunt position performs unexpectedly, Flexshares Global 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 Flexshares Global will offset losses from the drop in Flexshares Global's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Innovator Lunt as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Innovator Lunt's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Innovator Lunt's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Innovator Lunt Low.
The idea behind Innovator Lunt Low and Flexshares Global Broad 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.
Flexshares Global vs. 3M Company
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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