Correlation Between Fidelity Limited and Fidelity Tax-free

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

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

Diversification Opportunities for Fidelity Limited and Fidelity Tax-free

0.98

Correlation Coefficient

Fidelity Limited  Fidelity Tax-free

Almost no diversification

The 3 months correlation between Fidelity and Fidelity is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Limited Term and Fidelity Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Tax Free and Fidelity Limited 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 Limited Term are associated (or correlated) with Fidelity Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Tax Free has no effect on the direction of Fidelity Limited i.e., Fidelity Limited and Fidelity Tax-free go up and down completely randomly.

Pair Corralation between Fidelity Limited and Fidelity Tax-free

Assuming the 90 days horizon Fidelity Limited is expected to generate 2.87 times less return on investment than Fidelity Tax-free. But when comparing it to its historical volatility, Fidelity Limited Term is 2.33 times less risky than Fidelity Tax-free. It trades about 0.04 of its potential returns per unit of risk. Fidelity Tax Free Bond is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,108  in Fidelity Tax Free Bond on September 11, 2024 and sell it today you would earn a total of  9.00  from holding Fidelity Tax Free Bond or generate 0.81% return on investment over 90 days.

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

Fidelity Limited Term  vs.  Fidelity Tax Free Bond

Fidelity Limited Term

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Limited Term are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Fidelity Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Tax Free

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Tax Free Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Fidelity Tax-free 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 Limited and Fidelity Tax-free

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

The idea behind Fidelity Limited Term and Fidelity Tax Free Bond 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.