Correlation Between Fidelity Total and First Trust

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

By analyzing existing cross correlation between Fidelity Total Bond and First Trust TCW, you can compare the effects of market volatilities on Fidelity Total and First Trust 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 Total with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Total and First Trust.

Diversification Opportunities for Fidelity Total and First Trust

0.98

Correlation Coefficient

Fidelity Total  First Trust

Almost no diversification

The 3 months correlation between Fidelity and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Total Bond and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and Fidelity Total 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 Total Bond are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of Fidelity Total i.e., Fidelity Total and First Trust go up and down completely randomly.

Pair Corralation between Fidelity Total and First Trust

Given the investment horizon of 90 days Fidelity Total Bond is expected to generate 0.89 times more return on investment than First Trust. However, Fidelity Total Bond is 1.12 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.02 per unit of risk. If you would invest  4,552  in Fidelity Total Bond on November 28, 2024 and sell it today you would earn a total of  28.00  from holding Fidelity Total Bond or generate 0.62% return on investment over 90 days.

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

Fidelity Total Bond  vs.  First Trust TCW

Fidelity Total Bond

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Total Bond are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Fidelity Total is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust TCW

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fidelity Total and First Trust

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

The idea behind Fidelity Total Bond and First Trust TCW 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.