Correlation Between Arbitrage Fund and Fidelity Advisor

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

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

Diversification Opportunities for Arbitrage Fund and Fidelity Advisor

0.27

Correlation Coefficient

Arbitrage Fund  Fidelity Advisor

Modest diversification

The 3 months correlation between Arbitrage and Fidelity is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding The Arbitrage Fund and Fidelity Advisor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Energy and Arbitrage Fund 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 The Arbitrage Fund 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 Energy has no effect on the direction of Arbitrage Fund i.e., Arbitrage Fund and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Arbitrage Fund and Fidelity Advisor

Assuming the 90 days horizon Arbitrage Fund is expected to generate 10.5 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, The Arbitrage Fund is 5.88 times less risky than Fidelity Advisor. It trades about 0.04 of its potential returns per unit of risk. Fidelity Advisor Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,677  in Fidelity Advisor Energy on September 14, 2024 and sell it today you would earn a total of  218.00  from holding Fidelity Advisor Energy or generate 4.66% return on investment over 90 days.

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

The Arbitrage Fund  vs.  Fidelity Advisor Energy

Arbitrage Fund

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Arbitrage Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Advisor Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Energy are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Advisor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arbitrage Fund and Fidelity Advisor

The main advantage of trading using opposite Arbitrage Fund and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbitrage Fund 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 The Arbitrage Fund and Fidelity Advisor Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.