Correlation Between Madison Diversified and Fidelity Tax-free

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

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

Diversification Opportunities for Madison Diversified and Fidelity Tax-free

0.74

Correlation Coefficient

Madison Diversified  Fidelity Tax-free

Poor diversification

The 3 months correlation between Madison and Fidelity is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Madison Diversified Income and Fidelity Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Tax Free and Madison Diversified 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 Madison Diversified Income are associated (or correlated) with Fidelity Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Tax Free has no effect on the direction of Madison Diversified i.e., Madison Diversified and Fidelity Tax-free go up and down completely randomly.

Pair Corralation between Madison Diversified and Fidelity Tax-free

Assuming the 90 days horizon Madison Diversified Income is expected to generate 1.4 times more return on investment than Fidelity Tax-free. However, Madison Diversified is 1.4 times more volatile than Fidelity Tax Free Bond. It trades about 0.19 of its potential returns per unit of risk. Fidelity Tax Free Bond is currently generating about 0.04 per unit of risk. If you would invest  1,275  in Madison Diversified Income on October 26, 2024 and sell it today you would earn a total of  15.00  from holding Madison Diversified Income or generate 1.18% return on investment over 90 days.

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

Madison Diversified Income  vs.  Fidelity Tax Free Bond

Madison Diversified

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Diversified Income are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Madison Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Tax Free Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Madison Diversified and Fidelity Tax-free

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

The idea behind Madison Diversified Income and Fidelity Tax Free Bond 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.