Correlation Between Fidelity MSCI and Invesco KBW

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

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

Diversification Opportunities for Fidelity MSCI and Invesco KBW

0.65

Correlation Coefficient

Fidelity MSCI  Invesco KBW

Poor diversification

The 3 months correlation between Fidelity and Invesco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Financials and Invesco KBW High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW High 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 Financials are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW High has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Invesco KBW go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Invesco KBW

Given the investment horizon of 90 days Fidelity MSCI is expected to generate 2.59 times less return on investment than Invesco KBW. In addition to that, Fidelity MSCI is 1.21 times more volatile than Invesco KBW High. It trades about 0.01 of its total potential returns per unit of risk. Invesco KBW High is currently generating about 0.04 per unit of volatility. If you would invest  1,411  in Invesco KBW High on December 30, 2024 and sell it today you would earn a total of  31.00  from holding Invesco KBW High or generate 2.2% return on investment over 90 days.

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

Fidelity MSCI Financials  vs.  Invesco KBW High

Fidelity MSCI Financials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Financials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Invesco KBW High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW High are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco KBW is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fidelity MSCI and Invesco KBW

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

The idea behind Fidelity MSCI Financials and Invesco KBW High 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.