Correlation Between Fidelity Small and RBC Select

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

By analyzing existing cross correlation between Fidelity Small Cap and RBC Select Balanced, you can compare the effects of market volatilities on Fidelity Small and RBC Select 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 Small with a short position of RBC Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Small and RBC Select.

Diversification Opportunities for Fidelity Small and RBC Select

0.62

Correlation Coefficient

Fidelity Small  RBC Select

Poor diversification

The 3 months correlation between Fidelity and RBC is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Small Cap and RBC Select Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Select Balanced and Fidelity Small 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 Small Cap are associated (or correlated) with RBC Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Select Balanced has no effect on the direction of Fidelity Small i.e., Fidelity Small and RBC Select go up and down completely randomly.

Pair Corralation between Fidelity Small and RBC Select

Assuming the 90 days trading horizon Fidelity Small Cap is expected to generate 0.76 times more return on investment than RBC Select. However, Fidelity Small Cap is 1.32 times less risky than RBC Select. It trades about -0.08 of its potential returns per unit of risk. RBC Select Balanced is currently generating about -0.07 per unit of risk. If you would invest  400.00  in Fidelity Small Cap on October 11, 2024 and sell it today you would lose (9.00) from holding Fidelity Small Cap or give up 2.25% of portfolio value over 90 days.

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

Fidelity Small Cap  vs.  RBC Select Balanced

Fidelity Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Small Cap has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong fundamental indicators, Fidelity Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RBC Select Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC Select Balanced has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, RBC Select 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 Small and RBC Select

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

The idea behind Fidelity Small Cap and RBC Select Balanced 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.