Correlation Between Tax-managed and Fidelity Advisor

Can any of the company-specific risk be diversified away by investing in both Tax-managed 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 Tax-managed and Fidelity Advisor 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 Advisor Energy, you can compare the effects of market volatilities on Tax-managed 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 Tax-managed with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Fidelity Advisor.

Diversification Opportunities for Tax-managed and Fidelity Advisor

0.41

Correlation Coefficient

Tax-managed  Fidelity Advisor

Very weak diversification

The 3 months correlation between Tax-managed and Fidelity is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Fidelity Advisor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Energy 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 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 Energy has no effect on the direction of Tax-managed i.e., Tax-managed and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Tax-managed and Fidelity Advisor

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.76 times more return on investment than Fidelity Advisor. However, Tax Managed Large Cap is 1.32 times less risky than Fidelity Advisor. It trades about 0.09 of its potential returns per unit of risk. Fidelity Advisor Energy is currently generating about 0.05 per unit of risk. If you would invest  8,390  in Tax Managed Large Cap on October 25, 2024 and sell it today you would earn a total of  355.00  from holding Tax Managed Large Cap or generate 4.23% return on investment over 90 days.

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

Tax Managed Large Cap  vs.  Fidelity Advisor Energy

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 Advisor Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Energy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fidelity Advisor 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 Advisor

The main advantage of trading using opposite Tax-managed and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed 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 Tax Managed Large Cap and Fidelity Advisor Energy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.