Correlation Between Fidelity Tax-free and Fidelity California

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

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

Diversification Opportunities for Fidelity Tax-free and Fidelity California

1.0

Correlation Coefficient

Fidelity Tax-free  Fidelity California

No risk reduction

The 3 months correlation between Fidelity and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Tax Free Bond and Fidelity California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity California and Fidelity Tax-free 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 Tax Free Bond are associated (or correlated) with Fidelity California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity California has no effect on the direction of Fidelity Tax-free i.e., Fidelity Tax-free and Fidelity California go up and down completely randomly.

Pair Corralation between Fidelity Tax-free and Fidelity California

Assuming the 90 days horizon Fidelity Tax Free Bond is expected to generate 1.09 times more return on investment than Fidelity California. However, Fidelity Tax-free is 1.09 times more volatile than Fidelity California Municipal. It trades about 0.08 of its potential returns per unit of risk. Fidelity California Municipal is currently generating about 0.08 per unit of risk. If you would invest  1,016  in Fidelity Tax Free Bond on September 6, 2024 and sell it today you would earn a total of  100.00  from holding Fidelity Tax Free Bond or generate 9.84% return on investment over 90 days.

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

Fidelity Tax Free Bond  vs.  Fidelity California Municipal

Fidelity Tax Free

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Tax Free Bond are ranked lower than 4 (%) 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.

Fidelity California

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity California Municipal are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Fidelity California 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 Tax-free and Fidelity California

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

The idea behind Fidelity Tax Free Bond and Fidelity California Municipal 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.