Correlation Between Smallcap Growth and Fidelity Salem

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

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

Diversification Opportunities for Smallcap Growth and Fidelity Salem

0.78

Correlation Coefficient

Smallcap Growth  Fidelity Salem

Poor diversification

The 3 months correlation between Smallcap and Fidelity is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Fidelity Salem Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Salem Street and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Fidelity Salem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Salem Street has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Fidelity Salem go up and down completely randomly.

Pair Corralation between Smallcap Growth and Fidelity Salem

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Fidelity Salem. In addition to that, Smallcap Growth is 4.67 times more volatile than Fidelity Salem Street. It trades about -0.16 of its total potential returns per unit of risk. Fidelity Salem Street is currently generating about -0.06 per unit of volatility. If you would invest  1,060  in Fidelity Salem Street on October 7, 2024 and sell it today you would lose (9.00) from holding Fidelity Salem Street or give up 0.85% of portfolio value over 90 days.

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

Smallcap Growth Fund  vs.  Fidelity Salem Street

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smallcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Smallcap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Salem Street

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Salem Street has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Salem is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap Growth and Fidelity Salem

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

The idea behind Smallcap Growth Fund and Fidelity Salem Street 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.