Correlation Between Fidelity Government and Fidelity Gnma

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

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

Diversification Opportunities for Fidelity Government and Fidelity Gnma

0.99

Correlation Coefficient

Fidelity Government  Fidelity Gnma

No risk reduction

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

Pair Corralation between Fidelity Government and Fidelity Gnma

Assuming the 90 days horizon Fidelity Government Income is expected to under-perform the Fidelity Gnma. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity Government Income is 1.0 times less risky than Fidelity Gnma. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Fidelity Gnma Fund is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,011  in Fidelity Gnma Fund on October 6, 2024 and sell it today you would lose (14.00) from holding Fidelity Gnma Fund or give up 1.38% of portfolio value over 90 days.

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

Fidelity Government Income  vs.  Fidelity Gnma Fund

Fidelity Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fidelity Gnma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Gnma Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Gnma 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 Government and Fidelity Gnma

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

The idea behind Fidelity Government Income and Fidelity Gnma Fund 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.