Correlation Between Materials Select and Fidelity MSCI

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

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

Diversification Opportunities for Materials Select and Fidelity MSCI

0.4

Correlation Coefficient

Materials Select  Fidelity MSCI

Very weak diversification

The 3 months correlation between Materials and Fidelity is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and Fidelity MSCI Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Energy and Materials Select 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 Materials Select Sector 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 Energy has no effect on the direction of Materials Select i.e., Materials Select and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Materials Select and Fidelity MSCI

Considering the 90-day investment horizon Materials Select is expected to generate 3.82 times less return on investment than Fidelity MSCI. But when comparing it to its historical volatility, Materials Select Sector is 1.31 times less risky than Fidelity MSCI. It trades about 0.04 of its potential returns per unit of risk. Fidelity MSCI Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,334  in Fidelity MSCI Energy on December 27, 2024 and sell it today you would earn a total of  231.00  from holding Fidelity MSCI Energy or generate 9.9% return on investment over 90 days.

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

Materials Select Sector  vs.  Fidelity MSCI Energy

Materials Select Sector

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Fidelity MSCI Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Fidelity MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Materials Select and Fidelity MSCI

The main advantage of trading using opposite Materials Select and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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 Materials Select Sector and Fidelity MSCI Energy 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.