Correlation Between Invesco DWA and Fidelity MSCI

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

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

Diversification Opportunities for Invesco DWA and Fidelity MSCI

0.22

Correlation Coefficient

Invesco DWA  Fidelity MSCI

Modest diversification

The 3 months correlation between Invesco and Fidelity is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Basic and Fidelity MSCI Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Health and Invesco DWA 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 Invesco DWA Basic 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 Health has no effect on the direction of Invesco DWA i.e., Invesco DWA and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Invesco DWA and Fidelity MSCI

Considering the 90-day investment horizon Invesco DWA is expected to generate 5.05 times less return on investment than Fidelity MSCI. In addition to that, Invesco DWA is 1.52 times more volatile than Fidelity MSCI Health. It trades about 0.01 of its total potential returns per unit of risk. Fidelity MSCI Health is currently generating about 0.1 per unit of volatility. If you would invest  6,504  in Fidelity MSCI Health on December 28, 2024 and sell it today you would earn a total of  286.00  from holding Fidelity MSCI Health or generate 4.4% return on investment over 90 days.

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

Invesco DWA Basic  vs.  Fidelity MSCI Health

Invesco DWA Basic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Basic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Fidelity MSCI Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Health are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Fidelity MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco DWA and Fidelity MSCI

The main advantage of trading using opposite Invesco DWA and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA 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 Invesco DWA Basic and Fidelity MSCI Health 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.