Correlation Between MicroSectors Travel and Fidelity MSCI

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

By analyzing existing cross correlation between MicroSectors Travel 3X and Fidelity MSCI Consumer, you can compare the effects of market volatilities on MicroSectors Travel and Fidelity MSCI 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 Travel with a short position of Fidelity MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Travel and Fidelity MSCI.

Diversification Opportunities for MicroSectors Travel and Fidelity MSCI

0.8

Correlation Coefficient

MicroSectors Travel  Fidelity MSCI

Very poor diversification

The 3 months correlation between MicroSectors and Fidelity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Travel 3X and Fidelity MSCI Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Consumer and MicroSectors Travel 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 Travel 3X are associated (or correlated) with Fidelity MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity MSCI Consumer has no effect on the direction of MicroSectors Travel i.e., MicroSectors Travel and Fidelity MSCI go up and down completely randomly.

Pair Corralation between MicroSectors Travel and Fidelity MSCI

Given the investment horizon of 90 days MicroSectors Travel 3X is expected to generate 3.47 times more return on investment than Fidelity MSCI. However, MicroSectors Travel is 3.47 times more volatile than Fidelity MSCI Consumer. It trades about 0.07 of its potential returns per unit of risk. Fidelity MSCI Consumer is currently generating about 0.11 per unit of risk. If you would invest  2,330  in MicroSectors Travel 3X on September 26, 2024 and sell it today you would earn a total of  3,732  from holding MicroSectors Travel 3X or generate 160.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

MicroSectors Travel 3X  vs.  Fidelity MSCI Consumer

MicroSectors Travel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Travel 3X are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, MicroSectors Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fidelity MSCI Consumer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Consumer are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Fidelity MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors Travel and Fidelity MSCI

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

The idea behind MicroSectors Travel 3X and Fidelity MSCI Consumer 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.