Correlation Between Fidelity Focused and First Trust

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

By analyzing existing cross correlation between Fidelity Focused Stock and First Trust Short, you can compare the effects of market volatilities on Fidelity Focused and First Trust 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 Focused with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Focused and First Trust.

Diversification Opportunities for Fidelity Focused and First Trust

-0.03

Correlation Coefficient

Fidelity Focused  First Trust

Good diversification

The 3 months correlation between Fidelity and First is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Focused Stock and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Fidelity Focused 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 Focused Stock are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Short has no effect on the direction of Fidelity Focused i.e., Fidelity Focused and First Trust go up and down completely randomly.

Pair Corralation between Fidelity Focused and First Trust

Assuming the 90 days horizon Fidelity Focused Stock is expected to under-perform the First Trust. In addition to that, Fidelity Focused is 10.31 times more volatile than First Trust Short. It trades about -0.01 of its total potential returns per unit of risk. First Trust Short is currently generating about 0.14 per unit of volatility. If you would invest  1,759  in First Trust Short on December 4, 2024 and sell it today you would earn a total of  43.00  from holding First Trust Short or generate 2.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.19%
Values	Daily Returns

Fidelity Focused Stock  vs.  First Trust Short

Fidelity Focused Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Focused Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

First Trust Short

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust 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 Focused and First Trust

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

The idea behind Fidelity Focused Stock and First Trust Short 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.