Correlation Between Industrial Select and Fidelity MSCI
Can any of the company-specific risk be diversified away by investing in both Industrial 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 Industrial 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 Industrial Select Sector and Fidelity MSCI Industrials, you can compare the effects of market volatilities on Industrial 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 Industrial Select with a short position of Fidelity MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Fidelity MSCI.
Diversification Opportunities for Industrial Select and Fidelity MSCI
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Industrial and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Industrial 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 Industrial 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 Industrial 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 Industrial Select i.e., Industrial Select and Fidelity MSCI go up and down completely randomly.
Pair Corralation between Industrial Select and Fidelity MSCI
Considering the 90-day investment horizon Industrial Select is expected to generate 1.04 times less return on investment than Fidelity MSCI. But when comparing it to its historical volatility, Industrial Select Sector is 1.07 times less risky than Fidelity MSCI. It trades about 0.12 of its potential returns per unit of risk. Fidelity MSCI Industrials is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 5,313 in Fidelity MSCI Industrials on September 1, 2024 and sell it today you would earn a total of 2,426 from holding Fidelity MSCI Industrials or generate 45.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. Fidelity MSCI Industrials
Performance |
| Timeline |
| Industrial Select Sector |
| Fidelity MSCI Industrials |
Industrial Select and Fidelity MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and Fidelity MSCI
The main advantage of trading using opposite Industrial Select and Fidelity MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial 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.| Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial Select vs. Health Care Select |
| Fidelity MSCI vs. Fidelity MSCI Materials | Fidelity MSCI vs. Fidelity MSCI Financials | Fidelity MSCI vs. Fidelity MSCI Consumer | Fidelity MSCI vs. Fidelity MSCI Consumer |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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