Correlation Between Fidelity MSCI and First Trust

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

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

Diversification Opportunities for Fidelity MSCI and First Trust

0.9

Correlation Coefficient

Fidelity MSCI  First Trust

Almost no diversification

The 3 months correlation between Fidelity and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Utilities and First Trust Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Utilities 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 Utilities are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Utilities has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and First Trust go up and down completely randomly.

Pair Corralation between Fidelity MSCI and First Trust

Given the investment horizon of 90 days Fidelity MSCI is expected to generate 1.45 times less return on investment than First Trust. In addition to that, Fidelity MSCI is 1.08 times more volatile than First Trust Utilities. It trades about 0.15 of its total potential returns per unit of risk. First Trust Utilities is currently generating about 0.24 per unit of volatility. If you would invest  3,592  in First Trust Utilities on September 2, 2024 and sell it today you would earn a total of  515.00  from holding First Trust Utilities or generate 14.34% return on investment over 90 days.

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

Fidelity MSCI Utilities  vs.  First Trust Utilities

Fidelity MSCI Utilities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Utilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Fidelity MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Utilities

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Utilities are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fidelity MSCI and First Trust

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

The idea behind Fidelity MSCI Utilities and First Trust Utilities 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.