Can any of the company-specific risk be diversified away by investing in both Fidelity MSCI and First Trust 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 Fidelity MSCI and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity MSCI Health and First Trust Health, you can compare the effects of market volatilities on Fidelity MSCI and First Trust 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 Fidelity MSCI with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and First Trust.
Diversification Opportunities for Fidelity MSCI and First Trust
The 3 months correlation between Fidelity and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Health and First Trust Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Health and Fidelity MSCI 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 Fidelity MSCI Health are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Health has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and First Trust go up and down completely randomly.
Pair Corralation between Fidelity MSCI and First Trust
Given the investment horizon of 90 days Fidelity MSCI Health is expected to generate 1.07 times more return on investment than First Trust. However, Fidelity MSCI is 1.07 times more volatile than First Trust Health. It trades about 0.14 of its potential returns per unit of risk. First Trust Health is currently generating about 0.05 per unit of risk. If you would invest 6,684 in Fidelity MSCI Health on March 6, 2024 and sell it today you would earn a total of 126.00 from holding Fidelity MSCI Health or generate 1.89% return on investment over 90 days.
Over the last 90 days Fidelity MSCI Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days First Trust Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.