Correlation Between Small Cap and Fidelity Capital

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

By analyzing existing cross correlation between Small Cap Value Profund and Fidelity Capital Income, you can compare the effects of market volatilities on Small Cap and Fidelity Capital 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 Small Cap with a short position of Fidelity Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Fidelity Capital.

Diversification Opportunities for Small Cap and Fidelity Capital

0.94

Correlation Coefficient

Small Cap  Fidelity Capital

Almost no diversification

The 3 months correlation between Small and Fidelity is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Fidelity Capital Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Capital Income and Small Cap 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 Small Cap Value Profund are associated (or correlated) with Fidelity Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Capital Income has no effect on the direction of Small Cap i.e., Small Cap and Fidelity Capital go up and down completely randomly.

Pair Corralation between Small Cap and Fidelity Capital

Assuming the 90 days horizon Small Cap Value Profund is expected to under-perform the Fidelity Capital. In addition to that, Small Cap is 2.86 times more volatile than Fidelity Capital Income. It trades about -0.31 of its total potential returns per unit of risk. Fidelity Capital Income is currently generating about -0.18 per unit of volatility. If you would invest  1,038  in Fidelity Capital Income on October 9, 2024 and sell it today you would lose (14.00) from holding Fidelity Capital Income or give up 1.35% of portfolio value over 90 days.

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

Small Cap Value Profund  vs.  Fidelity Capital Income

Small Cap Value

Risk-Adjusted Performance

2 of 100

Insignificant

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

Fidelity Capital Income

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Capital Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Fidelity Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Fidelity Capital

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

The idea behind Small Cap Value Profund and Fidelity Capital Income 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.