Correlation Between IShares Core and Fidelity Fundamental

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

By analyzing existing cross correlation between iShares Core SP and Fidelity Fundamental Large, you can compare the effects of market volatilities on IShares Core and Fidelity Fundamental 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 IShares Core with a short position of Fidelity Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Fidelity Fundamental.

Diversification Opportunities for IShares Core and Fidelity Fundamental

0.8

Correlation Coefficient

IShares Core  Fidelity Fundamental

Very poor diversification

The 3 months correlation between IShares and Fidelity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Fidelity Fundamental Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Fundamental and IShares Core 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 iShares Core SP are associated (or correlated) with Fidelity Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Fundamental has no effect on the direction of IShares Core i.e., IShares Core and Fidelity Fundamental go up and down completely randomly.

Pair Corralation between IShares Core and Fidelity Fundamental

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.89 times more return on investment than Fidelity Fundamental. However, iShares Core SP is 1.12 times less risky than Fidelity Fundamental. It trades about -0.08 of its potential returns per unit of risk. Fidelity Fundamental Large is currently generating about -0.08 per unit of risk. If you would invest  58,915  in iShares Core SP on December 29, 2024 and sell it today you would lose (3,103) from holding iShares Core SP or give up 5.27% of portfolio value over 90 days.

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

iShares Core SP  vs.  Fidelity Fundamental Large

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Fidelity Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Fundamental Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Fidelity Fundamental is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and Fidelity Fundamental

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

The idea behind iShares Core SP and Fidelity Fundamental Large 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.