Correlation Between IShares ESG and Fidelity Momentum

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

By analyzing existing cross correlation between iShares ESG Advanced and Fidelity Momentum Factor, you can compare the effects of market volatilities on IShares ESG and Fidelity Momentum 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 IShares ESG with a short position of Fidelity Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Fidelity Momentum.

Diversification Opportunities for IShares ESG and Fidelity Momentum

0.96

Correlation Coefficient

IShares ESG  Fidelity Momentum

Almost no diversification

The 3 months correlation between IShares and Fidelity is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Advanced and Fidelity Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Momentum Factor and IShares ESG 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 iShares ESG Advanced are associated (or correlated) with Fidelity Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Momentum Factor has no effect on the direction of IShares ESG i.e., IShares ESG and Fidelity Momentum go up and down completely randomly.

Pair Corralation between IShares ESG and Fidelity Momentum

Given the investment horizon of 90 days IShares ESG is expected to generate 1.57 times less return on investment than Fidelity Momentum. But when comparing it to its historical volatility, iShares ESG Advanced is 1.02 times less risky than Fidelity Momentum. It trades about 0.13 of its potential returns per unit of risk. Fidelity Momentum Factor is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,463  in Fidelity Momentum Factor on September 17, 2024 and sell it today you would earn a total of  763.00  from holding Fidelity Momentum Factor or generate 11.81% return on investment over 90 days.

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

iShares ESG Advanced  vs.  Fidelity Momentum Factor

iShares ESG Advanced

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Advanced are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fidelity Momentum Factor

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Momentum Factor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Fidelity Momentum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and Fidelity Momentum

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

The idea behind iShares ESG Advanced and Fidelity Momentum Factor 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.