Correlation Between Fidelity® Government and Royce Opportunity

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

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

Diversification Opportunities for Fidelity® Government and Royce Opportunity

-0.33

Correlation Coefficient

Fidelity® Government  Royce Opportunity

Very good diversification

The 3 months correlation between Fidelity® and Royce is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Government Money and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Fidelity® Government 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 Fidelity Government Money are associated (or correlated) with Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Fidelity® Government i.e., Fidelity® Government and Royce Opportunity go up and down completely randomly.

Pair Corralation between Fidelity® Government and Royce Opportunity

Assuming the 90 days horizon Fidelity Government Money is expected to generate 0.1 times more return on investment than Royce Opportunity. However, Fidelity Government Money is 10.25 times less risky than Royce Opportunity. It trades about 0.13 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about -0.12 per unit of risk. If you would invest  99.00  in Fidelity Government Money on December 24, 2024 and sell it today you would earn a total of  1.00  from holding Fidelity Government Money or generate 1.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Fidelity Government Money  vs.  Royce Opportunity Fund

Fidelity Government Money

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Government Money are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity® Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Opportunity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Opportunity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Fidelity® Government and Royce Opportunity

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

The idea behind Fidelity Government Money and Royce Opportunity Fund 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 Transaction History module to view history of all your transactions and understand their impact on performance.