Correlation Between Fidelity MSCI and Invesco Aerospace

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

By analyzing existing cross correlation between Fidelity MSCI Industrials and Invesco Aerospace Defense, you can compare the effects of market volatilities on Fidelity MSCI and Invesco Aerospace 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 Invesco Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity MSCI and Invesco Aerospace.

Diversification Opportunities for Fidelity MSCI and Invesco Aerospace

0.96

Correlation Coefficient

Fidelity MSCI  Invesco Aerospace

Almost no diversification

The 3 months correlation between Fidelity and Invesco is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Industrials and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense 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 Industrials are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Invesco Aerospace go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Invesco Aerospace

Given the investment horizon of 90 days Fidelity MSCI Industrials is expected to under-perform the Invesco Aerospace. In addition to that, Fidelity MSCI is 1.17 times more volatile than Invesco Aerospace Defense. It trades about -0.15 of its total potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.09 per unit of volatility. If you would invest  9,987  in Invesco Aerospace Defense on February 2, 2024 and sell it today you would earn a total of  136.00  from holding Invesco Aerospace Defense or generate 1.36% return on investment over 90 days.

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

Fidelity MSCI Industrials  vs.  Invesco Aerospace Defense

Fidelity MSCI Industrials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity MSCI Industrials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco Aerospace Defense

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Invesco Aerospace may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Fidelity MSCI and Invesco Aerospace

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

The idea behind Fidelity MSCI Industrials and Invesco Aerospace Defense 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.