Correlation Between MicroSectors FANG and Fidelity Dividend

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

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

Diversification Opportunities for MicroSectors FANG and Fidelity Dividend

-0.55

Correlation Coefficient

MicroSectors FANG  Fidelity Dividend

Excellent diversification

The 3 months correlation between MicroSectors and Fidelity is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Fidelity Dividend ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Dividend ETF and MicroSectors FANG 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 FANG Index are associated (or correlated) with Fidelity Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Dividend ETF has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Fidelity Dividend go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Fidelity Dividend

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Fidelity Dividend. In addition to that, MicroSectors FANG is 6.64 times more volatile than Fidelity Dividend ETF. It trades about -0.1 of its total potential returns per unit of risk. Fidelity Dividend ETF is currently generating about -0.2 per unit of volatility. If you would invest  5,303  in Fidelity Dividend ETF on October 4, 2024 and sell it today you would lose (168.00) from holding Fidelity Dividend ETF or give up 3.17% of portfolio value over 90 days.

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

MicroSectors FANG Index  vs.  Fidelity Dividend ETF

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Fidelity Dividend ETF

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Dividend ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Fidelity Dividend is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with MicroSectors FANG and Fidelity Dividend

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

The idea behind MicroSectors FANG Index and Fidelity Dividend ETF 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.