Correlation Between First Trust and Fidelity MSCI

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

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

Diversification Opportunities for First Trust and Fidelity MSCI

0.85

Correlation Coefficient

First Trust  Fidelity MSCI

Very poor diversification

The 3 months correlation between First and Fidelity is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and Fidelity MSCI Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Consumer and First Trust 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 First Trust Consumer are associated (or correlated) with Fidelity MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity MSCI Consumer has no effect on the direction of First Trust i.e., First Trust and Fidelity MSCI go up and down completely randomly.

Pair Corralation between First Trust and Fidelity MSCI

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.65 times more return on investment than Fidelity MSCI. However, First Trust Consumer is 1.54 times less risky than Fidelity MSCI. It trades about -0.23 of its potential returns per unit of risk. Fidelity MSCI Consumer is currently generating about -0.24 per unit of risk. If you would invest  6,700  in First Trust Consumer on October 15, 2024 and sell it today you would lose (290.00) from holding First Trust Consumer or give up 4.33% of portfolio value over 90 days.

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

First Trust Consumer  vs.  Fidelity MSCI Consumer

First Trust Consumer

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Fidelity MSCI Consumer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Consumer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Fidelity MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Trust and Fidelity MSCI

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

The idea behind First Trust Consumer and Fidelity MSCI 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.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.