Correlation Between Fidelity MSCI and Health Care

Can any of the company-specific risk be diversified away by investing in both Fidelity MSCI and Health Care 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 Fidelity MSCI and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fidelity MSCI Health and Health Care Select, you can compare the effects of market volatilities on Fidelity MSCI and Health Care 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 Fidelity MSCI with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and Health Care.

Diversification Opportunities for Fidelity MSCI and Health Care

0.97

Correlation Coefficient

Fidelity MSCI  Health Care

Almost no diversification

The 3 months correlation between Fidelity and Health is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Health and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select and Fidelity MSCI 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 Fidelity MSCI Health are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Health Care go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Health Care

Given the investment horizon of 90 days Fidelity MSCI is expected to generate 1.35 times less return on investment than Health Care. But when comparing it to its historical volatility, Fidelity MSCI Health is 1.01 times less risky than Health Care. It trades about 0.09 of its potential returns per unit of risk. Health Care Select is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,671  in Health Care Select on December 29, 2024 and sell it today you would earn a total of  781.00  from holding Health Care Select or generate 5.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Fidelity MSCI Health  vs.  Health Care Select

Fidelity MSCI Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Health are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Fidelity MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Health Care Select

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Select are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Fidelity MSCI and Health Care

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

The idea behind Fidelity MSCI Health and Health Care Select 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.