Correlation Between Fidelity Small and Fidelity Govt

Can any of the company-specific risk be diversified away by investing in both Fidelity Small and Fidelity Govt 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 Fidelity Govt 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 Fidelity Govt Cash, you can compare the effects of market volatilities on Fidelity Small and Fidelity Govt 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 Fidelity Govt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Small and Fidelity Govt.

Diversification Opportunities for Fidelity Small and Fidelity Govt

-0.05

Correlation Coefficient

Fidelity Small  Fidelity Govt

Good diversification

The 3 months correlation between Fidelity and Fidelity is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Small Cap and Fidelity Govt Cash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Govt Cash 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 Fidelity Govt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Govt Cash has no effect on the direction of Fidelity Small i.e., Fidelity Small and Fidelity Govt go up and down completely randomly.

Pair Corralation between Fidelity Small and Fidelity Govt

Assuming the 90 days horizon Fidelity Small Cap is expected to under-perform the Fidelity Govt. In addition to that, Fidelity Small is 10.67 times more volatile than Fidelity Govt Cash. It trades about -0.04 of its total potential returns per unit of risk. Fidelity Govt Cash is currently generating about 0.13 per unit of volatility. If you would invest  99.00  in Fidelity Govt Cash on October 15, 2024 and sell it today you would earn a total of  1.00  from holding Fidelity Govt Cash or generate 1.01% return on investment over 90 days.

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

Fidelity Small Cap  vs.  Fidelity Govt Cash

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. In spite of fairly strong basic indicators, Fidelity Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Govt Cash

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Govt Cash are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Govt 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 Fidelity Govt

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

The idea behind Fidelity Small Cap and Fidelity Govt Cash 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.