Correlation Between Vanguard Materials and Fidelity MSCI

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

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

Diversification Opportunities for Vanguard Materials and Fidelity MSCI

0.89

Correlation Coefficient

Vanguard Materials  Fidelity MSCI

Very poor diversification

The 3 months correlation between Vanguard and Fidelity is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Fidelity MSCI Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Financials and Vanguard Materials 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 Vanguard Materials Index 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 Financials has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Vanguard Materials and Fidelity MSCI

Considering the 90-day investment horizon Vanguard Materials is expected to generate 1.11 times less return on investment than Fidelity MSCI. But when comparing it to its historical volatility, Vanguard Materials Index is 1.1 times less risky than Fidelity MSCI. It trades about 0.01 of its potential returns per unit of risk. Fidelity MSCI Financials is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,834  in Fidelity MSCI Financials on December 29, 2024 and sell it today you would earn a total of  38.00  from holding Fidelity MSCI Financials or generate 0.56% return on investment over 90 days.

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

Vanguard Materials Index  vs.  Fidelity MSCI Financials

Vanguard Materials Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Materials is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Fidelity MSCI Financials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Financials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard Materials and Fidelity MSCI

The main advantage of trading using opposite Vanguard Materials and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials 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 Vanguard Materials Index and Fidelity MSCI Financials 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.