Correlation Between Tax-managed and Fidelity Managed

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

By analyzing existing cross correlation between Tax Managed Large Cap and Fidelity Managed Retirement, you can compare the effects of market volatilities on Tax-managed and Fidelity Managed 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 Tax-managed with a short position of Fidelity Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Fidelity Managed.

Diversification Opportunities for Tax-managed and Fidelity Managed

0.6

Correlation Coefficient

Tax-managed  Fidelity Managed

Poor diversification

The 3 months correlation between Tax-managed and Fidelity is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Fidelity Managed Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Managed Ret and Tax-managed 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 Tax Managed Large Cap are associated (or correlated) with Fidelity Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Managed Ret has no effect on the direction of Tax-managed i.e., Tax-managed and Fidelity Managed go up and down completely randomly.

Pair Corralation between Tax-managed and Fidelity Managed

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 2.17 times more return on investment than Fidelity Managed. However, Tax-managed is 2.17 times more volatile than Fidelity Managed Retirement. It trades about 0.08 of its potential returns per unit of risk. Fidelity Managed Retirement is currently generating about 0.02 per unit of risk. If you would invest  8,415  in Tax Managed Large Cap on October 26, 2024 and sell it today you would earn a total of  330.00  from holding Tax Managed Large Cap or generate 3.92% return on investment over 90 days.

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

Tax Managed Large Cap  vs.  Fidelity Managed Retirement

Tax Managed Large

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Managed Ret

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Managed Retirement are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tax-managed and Fidelity Managed

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

The idea behind Tax Managed Large Cap and Fidelity Managed Retirement 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.