Correlation Between Growth Allocation and Fidelity

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

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

Diversification Opportunities for Growth Allocation and Fidelity

-0.43

Correlation Coefficient

Growth Allocation  Fidelity

Very good diversification

The 3 months correlation between Growth and Fidelity is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Growth Allocation Index and Fidelity Bond Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Bond Index and Growth Allocation 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 Growth Allocation Index are associated (or correlated) with Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Bond Index has no effect on the direction of Growth Allocation i.e., Growth Allocation and Fidelity go up and down completely randomly.

Pair Corralation between Growth Allocation and Fidelity

Assuming the 90 days horizon Growth Allocation Index is expected to generate 1.56 times more return on investment than Fidelity. However, Growth Allocation is 1.56 times more volatile than Fidelity Bond Index. It trades about 0.15 of its potential returns per unit of risk. Fidelity Bond Index is currently generating about -0.04 per unit of risk. If you would invest  1,086  in Growth Allocation Index on September 2, 2024 and sell it today you would earn a total of  50.00  from holding Growth Allocation Index or generate 4.6% return on investment over 90 days.

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

Growth Allocation Index  vs.  Fidelity Bond Index

Growth Allocation Index

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Allocation Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Bond Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Growth Allocation and Fidelity

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

The idea behind Growth Allocation Index and Fidelity Bond Index 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.