Correlation Between Fidelity Salem and Health Care

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

By analyzing existing cross correlation between Fidelity Salem Street and Health Care Services, you can compare the effects of market volatilities on Fidelity Salem and Health Care 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 Salem with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Salem and Health Care.

Diversification Opportunities for Fidelity Salem and Health Care

0.63

Correlation Coefficient

Fidelity Salem  Health Care

Poor diversification

The 3 months correlation between Fidelity and Health is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Salem Street and Health Care Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Services and Fidelity Salem 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 Salem Street are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Services has no effect on the direction of Fidelity Salem i.e., Fidelity Salem and Health Care go up and down completely randomly.

Pair Corralation between Fidelity Salem and Health Care

Assuming the 90 days horizon Fidelity Salem Street is expected to generate 0.74 times more return on investment than Health Care. However, Fidelity Salem Street is 1.36 times less risky than Health Care. It trades about 0.05 of its potential returns per unit of risk. Health Care Services is currently generating about -0.07 per unit of risk. If you would invest  1,096  in Fidelity Salem Street on October 5, 2024 and sell it today you would earn a total of  128.00  from holding Fidelity Salem Street or generate 11.68% return on investment over 90 days.

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

Fidelity Salem Street  vs.  Health Care Services

Fidelity Salem Street

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Salem Street has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Health Care Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Fidelity Salem and Health Care

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

The idea behind Fidelity Salem Street and Health Care Services 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.