Correlation Between Fidelity MSCI and Select STOXX

Can any of the company-specific risk be diversified away by investing in both Fidelity MSCI and Select STOXX 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 Select STOXX 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 Select STOXX Europe, you can compare the effects of market volatilities on Fidelity MSCI and Select STOXX 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 Select STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and Select STOXX.

Diversification Opportunities for Fidelity MSCI and Select STOXX

-0.52

Correlation Coefficient

Fidelity MSCI  Select STOXX

Excellent diversification

The 3 months correlation between Fidelity and Select is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Industrials and Select STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select STOXX Europe 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 Select STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select STOXX Europe has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Select STOXX go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Select STOXX

Given the investment horizon of 90 days Fidelity MSCI Industrials is expected to under-perform the Select STOXX. But the etf apears to be less risky and, when comparing its historical volatility, Fidelity MSCI Industrials is 1.93 times less risky than Select STOXX. The etf trades about -0.03 of its potential returns per unit of risk. The Select STOXX Europe is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,461  in Select STOXX Europe on December 26, 2024 and sell it today you would earn a total of  976.00  from holding Select STOXX Europe or generate 39.66% return on investment over 90 days.

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

Fidelity MSCI Industrials  vs.  Select STOXX Europe

Fidelity MSCI Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity MSCI Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Select STOXX Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fidelity MSCI and Select STOXX

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

The idea behind Fidelity MSCI Industrials and Select STOXX Europe 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.