Correlation Between Financial Select and Fidelity MSCI

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

Diversification Opportunities for Financial Select and Fidelity MSCI

0.82

Correlation Coefficient

Financial Select  Fidelity MSCI

Very poor diversification

The 3 months correlation between Financial and Fidelity is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Fidelity MSCI Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Industrials and Financial 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 Financial 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 Industrials has no effect on the direction of Financial Select i.e., Financial Select and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Financial Select and Fidelity MSCI

Considering the 90-day investment horizon Financial Select Sector is expected to generate 1.08 times more return on investment than Fidelity MSCI. However, Financial Select is 1.08 times more volatile than Fidelity MSCI Industrials. It trades about -0.18 of its potential returns per unit of risk. Fidelity MSCI Industrials is currently generating about -0.38 per unit of risk. If you would invest  5,094  in Financial Select Sector on September 27, 2024 and sell it today you would lose (185.00) from holding Financial Select Sector or give up 3.63% of portfolio value over 90 days.

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

Financial Select Sector  vs.  Fidelity MSCI Industrials

Financial Select Sector

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fidelity MSCI Industrials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity MSCI Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Financial Select and Fidelity MSCI

The main advantage of trading using opposite Financial Select and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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 Financial Select Sector and Fidelity MSCI Industrials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.