Correlation Between Fidelity MSCI and Technology Select

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

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

Diversification Opportunities for Fidelity MSCI and Technology Select

0.87

Correlation Coefficient

Fidelity MSCI  Technology Select

Very poor diversification

The 3 months correlation between Fidelity and Technology is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity MSCI Information and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector 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 Information are associated (or correlated) with Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of Fidelity MSCI i.e., Fidelity MSCI and Technology Select go up and down completely randomly.

Pair Corralation between Fidelity MSCI and Technology Select

Given the investment horizon of 90 days Fidelity MSCI Information is expected to under-perform the Technology Select. In addition to that, Fidelity MSCI is 1.12 times more volatile than Technology Select Sector. It trades about -0.33 of its total potential returns per unit of risk. Technology Select Sector is currently generating about -0.31 per unit of volatility. If you would invest  20,852  in Technology Select Sector on January 24, 2024 and sell it today you would lose (1,427) from holding Technology Select Sector or give up 6.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Fidelity MSCI Information  vs.  Technology Select Sector

Fidelity MSCI Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity MSCI Information has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Fidelity MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Technology Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fidelity MSCI and Technology Select

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

The idea behind Fidelity MSCI Information and Technology Select Sector 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.