Correlation Between Fidelity Covington and Vanguard Ultra

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

Diversification Opportunities for Fidelity Covington and Vanguard Ultra

0.93

Correlation Coefficient

Fidelity Covington  Vanguard Ultra

Almost no diversification

The 3 months correlation between Fidelity and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Covington Trust and Vanguard Ultra Short Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Ultra Short 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 Vanguard Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Ultra Short has no effect on the direction of Fidelity Covington i.e., Fidelity Covington and Vanguard Ultra go up and down completely randomly.

Pair Corralation between Fidelity Covington and Vanguard Ultra

Given the investment horizon of 90 days Fidelity Covington Trust is expected to generate 19.57 times more return on investment than Vanguard Ultra. However, Fidelity Covington is 19.57 times more volatile than Vanguard Ultra Short Bond. It trades about 0.14 of its potential returns per unit of risk. Vanguard Ultra Short Bond is currently generating about 0.42 per unit of risk. If you would invest  2,495  in Fidelity Covington Trust on September 27, 2024 and sell it today you would earn a total of  1,175  from holding Fidelity Covington Trust or generate 47.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.63%
Values	Daily Returns

Fidelity Covington Trust  vs.  Vanguard Ultra Short Bond

Fidelity Covington Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Covington Trust are ranked lower than 13 (%) 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.

Vanguard Ultra Short

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Ultra Short Bond are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Ultra is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fidelity Covington and Vanguard Ultra

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

The idea behind Fidelity Covington Trust and Vanguard Ultra Short Bond 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.