Correlation Between Fidelity Small and Fidelity Dividend

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

Diversification Opportunities for Fidelity Small and Fidelity Dividend

0.8

Correlation Coefficient

Fidelity Small  Fidelity Dividend

Very poor diversification

The 3 months correlation between Fidelity and Fidelity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Small Cap and Fidelity Dividend Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Dividend Growth 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 Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Dividend Growth has no effect on the direction of Fidelity Small i.e., Fidelity Small and Fidelity Dividend go up and down completely randomly.

Pair Corralation between Fidelity Small and Fidelity Dividend

Assuming the 90 days horizon Fidelity Small is expected to generate 1.25 times less return on investment than Fidelity Dividend. In addition to that, Fidelity Small is 1.46 times more volatile than Fidelity Dividend Growth. It trades about 0.08 of its total potential returns per unit of risk. Fidelity Dividend Growth is currently generating about 0.14 per unit of volatility. If you would invest  3,763  in Fidelity Dividend Growth on September 15, 2024 and sell it today you would earn a total of  246.00  from holding Fidelity Dividend Growth or generate 6.54% return on investment over 90 days.

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

Fidelity Small Cap  vs.  Fidelity Dividend Growth

Fidelity Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental 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 Dividend Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Dividend Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Fidelity Dividend may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fidelity Small and Fidelity Dividend

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

The idea behind Fidelity Small Cap and Fidelity Dividend Growth 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.