Correlation Between Fidelity Municipal and Great West

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

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

Diversification Opportunities for Fidelity Municipal and Great West

0.81

Correlation Coefficient

Fidelity Municipal  Great West

Very poor diversification

The 3 months correlation between Fidelity and Great is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Municipal Income and Great West Multi Manager Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Multi and Fidelity Municipal 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 Municipal Income are associated (or correlated) with Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Multi has no effect on the direction of Fidelity Municipal i.e., Fidelity Municipal and Great West go up and down completely randomly.

Pair Corralation between Fidelity Municipal and Great West

Assuming the 90 days horizon Fidelity Municipal is expected to generate 4.17 times less return on investment than Great West. But when comparing it to its historical volatility, Fidelity Municipal Income is 14.09 times less risky than Great West. It trades about 0.2 of its potential returns per unit of risk. Great West Multi Manager Large is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,302  in Great West Multi Manager Large on September 27, 2024 and sell it today you would earn a total of  15.00  from holding Great West Multi Manager Large or generate 1.15% return on investment over 90 days.

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

Fidelity Municipal Income  vs.  Great West Multi Manager Large

Fidelity Municipal Income

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Municipal Income are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Great West Multi

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Multi Manager Large are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Great West 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 Municipal and Great West

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

The idea behind Fidelity Municipal Income and Great West Multi Manager Large 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.