Correlation Between Fidelity California and Diversified Municipal

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

By analyzing existing cross correlation between Fidelity California Municipal and Diversified Municipal Portfolio, you can compare the effects of market volatilities on Fidelity California and Diversified Municipal 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 California with a short position of Diversified Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity California and Diversified Municipal.

Diversification Opportunities for Fidelity California and Diversified Municipal

0.99

Correlation Coefficient

Fidelity California  Diversified Municipal

No risk reduction

The 3 months correlation between Fidelity and Diversified is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity California Municipal and Diversified Municipal Portfoli in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Municipal and Fidelity California 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 California Municipal are associated (or correlated) with Diversified Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Municipal has no effect on the direction of Fidelity California i.e., Fidelity California and Diversified Municipal go up and down completely randomly.

Pair Corralation between Fidelity California and Diversified Municipal

Assuming the 90 days horizon Fidelity California Municipal is expected to under-perform the Diversified Municipal. In addition to that, Fidelity California is 1.74 times more volatile than Diversified Municipal Portfolio. It trades about -0.32 of its total potential returns per unit of risk. Diversified Municipal Portfolio is currently generating about -0.39 per unit of volatility. If you would invest  1,401  in Diversified Municipal Portfolio on October 10, 2024 and sell it today you would lose (17.00) from holding Diversified Municipal Portfolio or give up 1.21% of portfolio value over 90 days.

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

Fidelity California Municipal  vs.  Diversified Municipal Portfoli

Fidelity California

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity California Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diversified Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Municipal Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Diversified Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fidelity California and Diversified Municipal

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

The idea behind Fidelity California Municipal and Diversified Municipal Portfolio 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.