Correlation Between Fidelity MSCI and First Trust

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

Diversification Opportunities for Fidelity MSCI and First Trust

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Fidelity and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Industrials and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA 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 Industrials 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 RBA has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and First Trust go up and down completely randomly.

Pair Corralation between Fidelity MSCI and First Trust

Given the investment horizon of 90 days Fidelity MSCI is expected to generate 1.51 times less return on investment than First Trust. But when comparing it to its historical volatility, Fidelity MSCI Industrials is 1.6 times less risky than First Trust. It trades about 0.09 of its potential returns per unit of risk. First Trust RBA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,948  in First Trust RBA on September 17, 2024 and sell it today you would earn a total of  3,316  from holding First Trust RBA or generate 67.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Fidelity MSCI Industrials  vs.  First Trust RBA

 Performance 
       Timeline  
Fidelity MSCI Industrials 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Industrials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
First Trust RBA 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Fidelity MSCI and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fidelity MSCI and First Trust

The main advantage of trading using opposite Fidelity MSCI and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity MSCI 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 Fidelity MSCI Industrials and First Trust RBA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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