Correlation Between Fidelity Value and Fidelity Quality

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

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

Diversification Opportunities for Fidelity Value and Fidelity Quality

0.99

Correlation Coefficient

Fidelity Value  Fidelity Quality

No risk reduction

The 3 months correlation between Fidelity and Fidelity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Value Factor and Fidelity Quality Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Quality Factor and Fidelity Value 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 Value Factor are associated (or correlated) with Fidelity Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Quality Factor has no effect on the direction of Fidelity Value i.e., Fidelity Value and Fidelity Quality go up and down completely randomly.

Pair Corralation between Fidelity Value and Fidelity Quality

Given the investment horizon of 90 days Fidelity Value is expected to generate 1.1 times less return on investment than Fidelity Quality. But when comparing it to its historical volatility, Fidelity Value Factor is 1.01 times less risky than Fidelity Quality. It trades about 0.11 of its potential returns per unit of risk. Fidelity Quality Factor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,347  in Fidelity Quality Factor on September 19, 2024 and sell it today you would earn a total of  2,358  from holding Fidelity Quality Factor or generate 54.24% return on investment over 90 days.

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

Fidelity Value Factor  vs.  Fidelity Quality Factor

Fidelity Value Factor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Value Factor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fidelity Value is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Fidelity Quality Factor

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Quality Factor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fidelity Quality is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Fidelity Value and Fidelity Quality

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

The idea behind Fidelity Value Factor and Fidelity Quality Factor 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.