Correlation Between Fidelity 500 and Fidelity Advisor

Can any of the company-specific risk be diversified away by investing in both Fidelity 500 and Fidelity Advisor 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 500 and Fidelity Advisor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fidelity 500 Index and Fidelity Advisor Mid, you can compare the effects of market volatilities on Fidelity 500 and Fidelity Advisor 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 500 with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity 500 and Fidelity Advisor.

Diversification Opportunities for Fidelity 500 and Fidelity Advisor

0.91

Correlation Coefficient

Fidelity 500  Fidelity Advisor

Almost no diversification

The 3 months correlation between Fidelity and Fidelity is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity 500 Index and Fidelity Advisor Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Mid and Fidelity 500 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 500 Index are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Mid has no effect on the direction of Fidelity 500 i.e., Fidelity 500 and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Fidelity 500 and Fidelity Advisor

Assuming the 90 days horizon Fidelity 500 Index is expected to generate 0.76 times more return on investment than Fidelity Advisor. However, Fidelity 500 Index is 1.32 times less risky than Fidelity Advisor. It trades about 0.19 of its potential returns per unit of risk. Fidelity Advisor Mid is currently generating about 0.14 per unit of risk. If you would invest  19,554  in Fidelity 500 Index on September 14, 2024 and sell it today you would earn a total of  1,628  from holding Fidelity 500 Index or generate 8.33% return on investment over 90 days.

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

Fidelity 500 Index  vs.  Fidelity Advisor Mid

Fidelity 500 Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity 500 Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Fidelity 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fidelity Advisor Mid

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Mid are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Advisor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fidelity 500 and Fidelity Advisor

The main advantage of trading using opposite Fidelity 500 and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity 500 position performs unexpectedly, Fidelity Advisor 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 Advisor will offset losses from the drop in Fidelity Advisor's long position.

The idea behind Fidelity 500 Index and Fidelity Advisor Mid 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.