Correlation Between MicroSectors FANG and Innovator Equity

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Innovator Equity 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 Equity 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 Equity Defined, you can compare the effects of market volatilities on MicroSectors FANG and Innovator Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Innovator Equity.

Diversification Opportunities for MicroSectors FANG and Innovator Equity

-0.57

Correlation Coefficient

MicroSectors FANG  Innovator Equity

Excellent diversification

The 3 months correlation between MicroSectors and Innovator is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Innovator Equity Defined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Defined 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Defined has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Innovator Equity go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Innovator Equity

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 15.34 times more return on investment than Innovator Equity. However, MicroSectors FANG is 15.34 times more volatile than Innovator Equity Defined. It trades about 0.06 of its potential returns per unit of risk. Innovator Equity Defined is currently generating about 0.13 per unit of risk. If you would invest  18,348  in MicroSectors FANG Index on June 4, 2025 and sell it today you would earn a total of  25,042  from holding MicroSectors FANG Index or generate 136.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	25.0%
Values	Daily Returns

MicroSectors FANG Index  vs.  Innovator Equity Defined

MicroSectors FANG Index

Risk-Adjusted Performance

Weakest

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Innovator Equity Defined

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Defined are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Innovator Equity is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with MicroSectors FANG and Innovator Equity

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

The idea behind MicroSectors FANG Index and Innovator Equity Defined 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.