Correlation Between Absolute Core and Fidelity Momentum

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

By analyzing existing cross correlation between Absolute Core Strategy and Fidelity Momentum Factor, you can compare the effects of market volatilities on Absolute Core and Fidelity Momentum 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 Absolute Core with a short position of Fidelity Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Core and Fidelity Momentum.

Diversification Opportunities for Absolute Core and Fidelity Momentum

0.36

Correlation Coefficient

Absolute Core  Fidelity Momentum

Weak diversification

The 3 months correlation between Absolute and Fidelity is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Core Strategy and Fidelity Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Momentum Factor and Absolute Core 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 Absolute Core Strategy are associated (or correlated) with Fidelity Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Momentum Factor has no effect on the direction of Absolute Core i.e., Absolute Core and Fidelity Momentum go up and down completely randomly.

Pair Corralation between Absolute Core and Fidelity Momentum

Given the investment horizon of 90 days Absolute Core Strategy is expected to under-perform the Fidelity Momentum. But the etf apears to be less risky and, when comparing its historical volatility, Absolute Core Strategy is 1.69 times less risky than Fidelity Momentum. The etf trades about -0.01 of its potential returns per unit of risk. The Fidelity Momentum Factor is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,463  in Fidelity Momentum Factor on September 17, 2024 and sell it today you would earn a total of  763.00  from holding Fidelity Momentum Factor or generate 11.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Absolute Core Strategy  vs.  Fidelity Momentum Factor

Absolute Core Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absolute Core Strategy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Absolute Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Fidelity Momentum Factor

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Momentum Factor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Fidelity Momentum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Absolute Core and Fidelity Momentum

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

The idea behind Absolute Core Strategy and Fidelity Momentum Factor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.