Correlation Between Invesco Solar and Fidelity Covington

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

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

Diversification Opportunities for Invesco Solar and Fidelity Covington

0.63

Correlation Coefficient

Invesco Solar  Fidelity Covington

Poor diversification

The 3 months correlation between Invesco and Fidelity is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Solar ETF 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 Invesco Solar 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 Solar ETF 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 Invesco Solar i.e., Invesco Solar and Fidelity Covington go up and down completely randomly.

Pair Corralation between Invesco Solar and Fidelity Covington

Considering the 90-day investment horizon Invesco Solar ETF is expected to under-perform the Fidelity Covington. In addition to that, Invesco Solar is 1.3 times more volatile than Fidelity Covington Trust. It trades about -0.06 of its total potential returns per unit of risk. Fidelity Covington Trust is currently generating about -0.04 per unit of volatility. If you would invest  1,357  in Fidelity Covington Trust on December 29, 2024 and sell it today you would lose (55.00) from holding Fidelity Covington Trust or give up 4.05% of portfolio value over 90 days.

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

Invesco Solar ETF  vs.  Fidelity Covington Trust

Invesco Solar ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Solar ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Fidelity Covington Trust

Risk-Adjusted Performance

Very Weak

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 fairly stable basic indicators, Fidelity Covington is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Invesco Solar and Fidelity Covington

The main advantage of trading using opposite Invesco Solar and Fidelity Covington positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Solar 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 Invesco Solar ETF 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.