Correlation Between Fidelity Covington and Western

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

By analyzing existing cross correlation between Fidelity Covington Trust and Western Digital 475, you can compare the effects of market volatilities on Fidelity Covington and Western 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 Covington with a short position of Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Covington and Western.

Diversification Opportunities for Fidelity Covington and Western

-0.5

Correlation Coefficient

Fidelity Covington  Western

Very good diversification

The 3 months correlation between Fidelity and Western is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Covington Trust and Western Digital 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 475 and Fidelity Covington 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 Covington Trust are associated (or correlated) with Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital 475 has no effect on the direction of Fidelity Covington i.e., Fidelity Covington and Western go up and down completely randomly.

Pair Corralation between Fidelity Covington and Western

Given the investment horizon of 90 days Fidelity Covington Trust is expected to generate 0.7 times more return on investment than Western. However, Fidelity Covington Trust is 1.43 times less risky than Western. It trades about 0.17 of its potential returns per unit of risk. Western Digital 475 is currently generating about -0.22 per unit of risk. If you would invest  3,449  in Fidelity Covington Trust on September 23, 2024 and sell it today you would earn a total of  133.00  from holding Fidelity Covington Trust or generate 3.86% return on investment over 90 days.

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

Fidelity Covington Trust  vs.  Western Digital 475

Fidelity Covington Trust

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Covington Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Fidelity Covington may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Digital 475

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Digital 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Western Digital 475 investors.

Pair Trading with Fidelity Covington and Western

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

The idea behind Fidelity Covington Trust and Western Digital 475 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.