Correlation Between Fidelity Fundamental and IShares Trust

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

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

Diversification Opportunities for Fidelity Fundamental and IShares Trust

0.82

Correlation Coefficient

Fidelity Fundamental  IShares Trust

Very poor diversification

The 3 months correlation between Fidelity and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Fundamental Large and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Fidelity Fundamental 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 Fundamental Large are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Fidelity Fundamental i.e., Fidelity Fundamental and IShares Trust go up and down completely randomly.

Pair Corralation between Fidelity Fundamental and IShares Trust

Given the investment horizon of 90 days Fidelity Fundamental Large is expected to under-perform the IShares Trust. In addition to that, Fidelity Fundamental is 1.23 times more volatile than iShares Trust. It trades about -0.04 of its total potential returns per unit of risk. iShares Trust is currently generating about -0.01 per unit of volatility. If you would invest  3,240  in iShares Trust on December 1, 2024 and sell it today you would lose (22.00) from holding iShares Trust or give up 0.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Fidelity Fundamental Large  vs.  iShares Trust

Fidelity Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Fundamental Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Fidelity Fundamental is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Fidelity Fundamental and IShares Trust

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

The idea behind Fidelity Fundamental Large and iShares Trust 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .