Correlation Between Fidelity International and Vanguard Small

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

Diversification Opportunities for Fidelity International and Vanguard Small

-0.58

Correlation Coefficient

Fidelity International  Vanguard Small

Excellent diversification

The 3 months correlation between FIDELITY and Vanguard is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity International Index and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Fidelity International i.e., Fidelity International and Vanguard Small go up and down completely randomly.

Pair Corralation between Fidelity International and Vanguard Small

Assuming the 90 days horizon Fidelity International Index is expected to generate 0.74 times more return on investment than Vanguard Small. However, Fidelity International Index is 1.35 times less risky than Vanguard Small. It trades about 0.17 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about -0.11 per unit of risk. If you would invest  4,760  in Fidelity International Index on December 30, 2024 and sell it today you would earn a total of  428.00  from holding Fidelity International Index or generate 8.99% return on investment over 90 days.

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

Fidelity International Index  vs.  Vanguard Small Cap Index

Fidelity International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity International Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index 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.

Pair Trading with Fidelity International and Vanguard Small

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

The idea behind Fidelity International Index and Vanguard Small Cap 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.