Correlation Between Health Care and Fidelity MSCI

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

By analyzing existing cross correlation between Health Care Select and Fidelity MSCI Health, you can compare the effects of market volatilities on Health Care 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 Health Care with a short position of Fidelity MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Fidelity MSCI.

Diversification Opportunities for Health Care and Fidelity MSCI

1.0

Correlation Coefficient

Health Care  Fidelity MSCI

No risk reduction

The 3 months correlation between Health and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Select and Fidelity MSCI Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Health and Health Care 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 Health Care Select 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 Health has no effect on the direction of Health Care i.e., Health Care and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Health Care and Fidelity MSCI

Considering the 90-day investment horizon Health Care Select is expected to under-perform the Fidelity MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Health Care Select is 1.05 times less risky than Fidelity MSCI. The etf trades about -0.14 of its potential returns per unit of risk. The Fidelity MSCI Health is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  7,392  in Fidelity MSCI Health on August 30, 2024 and sell it today you would lose (389.00) from holding Fidelity MSCI Health or give up 5.26% of portfolio value over 90 days.

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

Health Care Select  vs.  Fidelity MSCI Health

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Health Care is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Fidelity MSCI Health

Risk-Adjusted Performance

0 of 100

Very Weak

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Health Care and Fidelity MSCI

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