Correlation Between Fidelity MSCI and SPDR SP

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

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

Diversification Opportunities for Fidelity MSCI and SPDR SP

0.9

Correlation Coefficient

Fidelity MSCI  SPDR SP

Almost no diversification

The 3 months correlation between Fidelity and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Financials and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech 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 Financials are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Biotech has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and SPDR SP go up and down completely randomly.

Pair Corralation between Fidelity MSCI and SPDR SP

Given the investment horizon of 90 days Fidelity MSCI Financials is expected to generate 0.9 times more return on investment than SPDR SP. However, Fidelity MSCI Financials is 1.11 times less risky than SPDR SP. It trades about -0.02 of its potential returns per unit of risk. SPDR SP Biotech is currently generating about -0.06 per unit of risk. If you would invest  7,243  in Fidelity MSCI Financials on February 4, 2025 and sell it today you would lose (298.00) from holding Fidelity MSCI Financials or give up 4.11% of portfolio value over 90 days.

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

Fidelity MSCI Financials  vs.  SPDR SP Biotech

Fidelity MSCI Financials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity MSCI Financials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

SPDR SP Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Fidelity MSCI and SPDR SP

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

The idea behind Fidelity MSCI Financials and SPDR SP Biotech 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.