Correlation Between Fidelity MSCI and Invesco DWA

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

By analyzing existing cross correlation between Fidelity MSCI Materials and Invesco DWA Financial, you can compare the effects of market volatilities on Fidelity MSCI and Invesco DWA 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 Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and Invesco DWA.

Diversification Opportunities for Fidelity MSCI and Invesco DWA

0.08

Correlation Coefficient

Fidelity MSCI  Invesco DWA

Significant diversification

The 3 months correlation between Fidelity and Invesco is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Materials and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial 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 Materials are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Invesco DWA go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Invesco DWA

Given the investment horizon of 90 days Fidelity MSCI is expected to generate 3.23 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, Fidelity MSCI Materials is 1.18 times less risky than Invesco DWA. It trades about 0.03 of its potential returns per unit of risk. Invesco DWA Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,953  in Invesco DWA Financial on September 29, 2024 and sell it today you would earn a total of  1,769  from holding Invesco DWA Financial or generate 44.75% return on investment over 90 days.

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

Fidelity MSCI Materials  vs.  Invesco DWA Financial

Fidelity MSCI Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity MSCI Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Invesco DWA Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Invesco DWA is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Fidelity MSCI and Invesco DWA

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

The idea behind Fidelity MSCI Materials and Invesco DWA Financial 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.