Correlation Between Absolute Convertible and Fidelity Advisor

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

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

Diversification Opportunities for Absolute Convertible and Fidelity Advisor

0.94

Correlation Coefficient

Absolute Convertible  Fidelity Advisor

Almost no diversification

The 3 months correlation between Absolute and Fidelity is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Fidelity Advisor Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Fin and Absolute Convertible 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 Convertible Arbitrage are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Fin has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Absolute Convertible and Fidelity Advisor

Assuming the 90 days horizon Absolute Convertible is expected to generate 9.48 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 25.39 times less risky than Fidelity Advisor. It trades about 0.49 of its potential returns per unit of risk. Fidelity Advisor Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,394  in Fidelity Advisor Financial on September 13, 2024 and sell it today you would earn a total of  526.00  from holding Fidelity Advisor Financial or generate 15.5% return on investment over 90 days.

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

Absolute Convertible Arbitrage  vs.  Fidelity Advisor Financial

Absolute Convertible

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 38 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Convertible is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Advisor Fin

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Financial are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Fidelity Advisor showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Absolute Convertible and Fidelity Advisor

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

The idea behind Absolute Convertible Arbitrage and Fidelity Advisor Financial 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.