Correlation Between Morningstar Unconstrained and Fidelity Covington

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Can any of the company-specific risk be diversified away by investing in both Morningstar Unconstrained and Fidelity Covington 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 Morningstar Unconstrained and Fidelity Covington into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Unconstrained Allocation and Fidelity Covington Trust, you can compare the effects of market volatilities on Morningstar Unconstrained and Fidelity Covington 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 Morningstar Unconstrained with a short position of Fidelity Covington. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Unconstrained and Fidelity Covington.

Diversification Opportunities for Morningstar Unconstrained and Fidelity Covington

MorningstarFidelityDiversified AwayMorningstarFidelityDiversified Away100%
0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Morningstar and Fidelity is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Unconstrained Allo and Fidelity Covington Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Covington Trust and Morningstar Unconstrained 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 Morningstar Unconstrained Allocation are associated (or correlated) with Fidelity Covington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Covington Trust has no effect on the direction of Morningstar Unconstrained i.e., Morningstar Unconstrained and Fidelity Covington go up and down completely randomly.

Pair Corralation between Morningstar Unconstrained and Fidelity Covington

Assuming the 90 days horizon Morningstar Unconstrained is expected to generate 9.52 times less return on investment than Fidelity Covington. But when comparing it to its historical volatility, Morningstar Unconstrained Allocation is 2.27 times less risky than Fidelity Covington. It trades about 0.06 of its potential returns per unit of risk. Fidelity Covington Trust is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,371  in Fidelity Covington Trust on September 15, 2024 and sell it today you would earn a total of  573.00  from holding Fidelity Covington Trust or generate 24.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Morningstar Unconstrained Allo  vs.  Fidelity Covington Trust

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -20-15-10-505
JavaScript chart by amCharts 3.21.15MSTSX FCLD
       Timeline  
Morningstar Unconstrained 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Unconstrained Allocation are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Morningstar Unconstrained is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec11.611.6511.711.7511.811.8511.911.95
Fidelity Covington Trust 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Solid
Over the last 90 days Fidelity Covington Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak essential indicators, Fidelity Covington exhibited solid returns over the last few months and may actually be approaching a breakup point.

Morningstar Unconstrained and Fidelity Covington Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.82-1.35-0.88-0.410.0160.450.921.391.862.33 0.20.40.60.81.01.2
JavaScript chart by amCharts 3.21.15MSTSX FCLD
       Returns  

Pair Trading with Morningstar Unconstrained and Fidelity Covington

The main advantage of trading using opposite Morningstar Unconstrained and Fidelity Covington positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Unconstrained position performs unexpectedly, Fidelity Covington 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 Covington will offset losses from the drop in Fidelity Covington's long position.
The idea behind Morningstar Unconstrained Allocation and Fidelity Covington Trust 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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