Correlation Between Energy Select and Fidelity MSCI

Can any of the company-specific risk be diversified away by investing in both Energy 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 Energy 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 Energy Select Sector and Fidelity MSCI Energy, you can compare the effects of market volatilities on Energy 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 Energy Select with a short position of Fidelity MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Fidelity MSCI.

Diversification Opportunities for Energy Select and Fidelity MSCI

0.99

Correlation Coefficient

Energy Select  Fidelity MSCI

No risk reduction

The 3 months correlation between Energy and Fidelity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Energy 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 Energy 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 Energy 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 Energy Select i.e., Energy Select and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Energy Select and Fidelity MSCI

Considering the 90-day investment horizon Energy Select Sector is expected to generate 1.01 times more return on investment than Fidelity MSCI. However, Energy Select is 1.01 times more volatile than Fidelity MSCI Energy. It trades about -0.03 of its potential returns per unit of risk. Fidelity MSCI Energy is currently generating about -0.05 per unit of risk. If you would invest  9,373  in Energy Select Sector on December 2, 2024 and sell it today you would lose (273.00) from holding Energy Select Sector or give up 2.91% of portfolio value over 90 days.

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

Energy Select Sector  vs.  Fidelity MSCI Energy

Energy Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Fidelity MSCI Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Energy Select and Fidelity MSCI

The main advantage of trading using opposite Energy Select and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy 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 Energy 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.