Correlation Between Fidelity Europe and Fidelity Japan

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

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

Diversification Opportunities for Fidelity Europe and Fidelity Japan

0.68

Correlation Coefficient

Fidelity Europe  Fidelity Japan

Poor diversification

The 3 months correlation between Fidelity and Fidelity is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Europe Fund and Fidelity Japan Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Japan Smaller and Fidelity Europe 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 Europe Fund are associated (or correlated) with Fidelity Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Japan Smaller has no effect on the direction of Fidelity Europe i.e., Fidelity Europe and Fidelity Japan go up and down completely randomly.

Pair Corralation between Fidelity Europe and Fidelity Japan

Assuming the 90 days horizon Fidelity Europe Fund is expected to under-perform the Fidelity Japan. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity Europe Fund is 1.38 times less risky than Fidelity Japan. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Fidelity Japan Smaller is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,679  in Fidelity Japan Smaller on September 13, 2024 and sell it today you would earn a total of  8.00  from holding Fidelity Japan Smaller or generate 0.48% return on investment over 90 days.

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

Fidelity Europe Fund  vs.  Fidelity Japan Smaller

Fidelity Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fidelity Japan Smaller

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Japan Smaller has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Japan 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 Europe and Fidelity Japan

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

The idea behind Fidelity Europe Fund and Fidelity Japan Smaller 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.