Correlation Between Fidelity MSCI and IShares Regional

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

By analyzing existing cross correlation between Fidelity MSCI Consumer and iShares Regional Banks, you can compare the effects of market volatilities on Fidelity MSCI and IShares Regional 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 IShares Regional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and IShares Regional.

Diversification Opportunities for Fidelity MSCI and IShares Regional

0.49

Correlation Coefficient

Fidelity MSCI  IShares Regional

Very weak diversification

The 3 months correlation between Fidelity and IShares is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Consumer and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks 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 Consumer are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and IShares Regional go up and down completely randomly.

Pair Corralation between Fidelity MSCI and IShares Regional

Given the investment horizon of 90 days Fidelity MSCI Consumer is expected to under-perform the IShares Regional. But the etf apears to be less risky and, when comparing its historical volatility, Fidelity MSCI Consumer is 3.42 times less risky than IShares Regional. The etf trades about -0.04 of its potential returns per unit of risk. The iShares Regional Banks is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,723  in iShares Regional Banks on September 23, 2024 and sell it today you would earn a total of  307.00  from holding iShares Regional Banks or generate 6.5% return on investment over 90 days.

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

Fidelity MSCI Consumer  vs.  iShares Regional Banks

Fidelity MSCI Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity MSCI Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat 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.

iShares Regional Banks

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Regional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fidelity MSCI and IShares Regional

The main advantage of trading using opposite Fidelity MSCI and IShares Regional positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity MSCI position performs unexpectedly, IShares Regional 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 IShares Regional will offset losses from the drop in IShares Regional's long position.

The idea behind Fidelity MSCI Consumer and iShares Regional Banks 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.