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 Consumer and Invesco DWA Consumer, 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

0.72

Correlation Coefficient

Fidelity MSCI  Invesco DWA

Poor diversification

The 3 months correlation between Fidelity and Invesco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Consumer and Invesco DWA Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Consumer 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 Consumer 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 Consumer 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 Consumer is expected to generate 0.7 times more return on investment than Invesco DWA. However, Fidelity MSCI Consumer is 1.42 times less risky than Invesco DWA. It trades about 0.03 of its potential returns per unit of risk. Invesco DWA Consumer is currently generating about 0.01 per unit of risk. If you would invest  5,037  in Fidelity MSCI Consumer on September 20, 2024 and sell it today you would earn a total of  17.00  from holding Fidelity MSCI Consumer or generate 0.34% return on investment over 90 days.

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

Fidelity MSCI Consumer  vs.  Invesco DWA Consumer

Fidelity MSCI Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity MSCI Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fidelity MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco DWA Consumer

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Consumer are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Invesco DWA is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 Consumer and Invesco DWA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.