Correlation Between Fidelity International and Litman Gregory

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

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

Diversification Opportunities for Fidelity International and Litman Gregory

0.92

Correlation Coefficient

Fidelity International  Litman Gregory

Almost no diversification

The 3 months correlation between Fidelity and Litman is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity International Index and Litman Gregory Masters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Masters and Fidelity International 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 International Index are associated (or correlated) with Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Masters has no effect on the direction of Fidelity International i.e., Fidelity International and Litman Gregory go up and down completely randomly.

Pair Corralation between Fidelity International and Litman Gregory

Assuming the 90 days horizon Fidelity International Index is expected to under-perform the Litman Gregory. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity International Index is 1.02 times less risky than Litman Gregory. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Litman Gregory Masters is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,854  in Litman Gregory Masters on September 14, 2024 and sell it today you would lose (35.00) from holding Litman Gregory Masters or give up 1.89% of portfolio value over 90 days.

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

Fidelity International Index  vs.  Litman Gregory Masters

Fidelity International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Litman Gregory Masters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Litman Gregory Masters has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Litman Gregory 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 International and Litman Gregory

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

The idea behind Fidelity International Index and Litman Gregory Masters 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.