Correlation Between Fidelity California and Vanguard California

Can any of the company-specific risk be diversified away by investing in both Fidelity California and Vanguard California 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 Vanguard California 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 Vanguard California Long Term, you can compare the effects of market volatilities on Fidelity California and Vanguard California 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 Vanguard California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity California and Vanguard California.

Diversification Opportunities for Fidelity California and Vanguard California

0.99

Correlation Coefficient

Fidelity California  Vanguard California

No risk reduction

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

Pair Corralation between Fidelity California and Vanguard California

Assuming the 90 days horizon Fidelity California Municipal is expected to generate 0.97 times more return on investment than Vanguard California. However, Fidelity California Municipal is 1.03 times less risky than Vanguard California. It trades about -0.04 of its potential returns per unit of risk. Vanguard California Long Term is currently generating about -0.06 per unit of risk. If you would invest  1,212  in Fidelity California Municipal on December 30, 2024 and sell it today you would lose (8.00) from holding Fidelity California Municipal or give up 0.66% 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.  Vanguard California Long Term

Fidelity California

Risk-Adjusted Performance

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.

Vanguard California

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard California Long Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard California 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 Vanguard California

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

The idea behind Fidelity California Municipal and Vanguard California Long Term 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.