Correlation Between Innovator Small and First Trust

Can any of the company-specific risk be diversified away by investing in both Innovator Small and First Trust 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 Small and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Innovator Small Cap and First Trust Enhanced, you can compare the effects of market volatilities on Innovator Small and First Trust 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 Small with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator Small and First Trust.

Diversification Opportunities for Innovator Small and First Trust

0.96

Correlation Coefficient

Innovator Small  First Trust

Almost no diversification

The 3 months correlation between Innovator and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Innovator Small Cap and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and Innovator Small 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 Small Cap are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Enhanced has no effect on the direction of Innovator Small i.e., Innovator Small and First Trust go up and down completely randomly.

Pair Corralation between Innovator Small and First Trust

Given the investment horizon of 90 days Innovator Small is expected to generate 1.53 times less return on investment than First Trust. But when comparing it to its historical volatility, Innovator Small Cap is 1.07 times less risky than First Trust. It trades about 0.15 of its potential returns per unit of risk. First Trust Enhanced is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,912  in First Trust Enhanced on May 3, 2025 and sell it today you would earn a total of  174.00  from holding First Trust Enhanced or generate 9.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Innovator Small Cap  vs.  First Trust Enhanced

Innovator Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Innovator Small is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First Trust Enhanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Innovator Small and First Trust

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

The idea behind Innovator Small Cap and First Trust Enhanced 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.