Correlation Between Schwab Tax-free and Fidelity Convertible

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

By analyzing existing cross correlation between Schwab Tax Free Bond and Fidelity Vertible Securities, you can compare the effects of market volatilities on Schwab Tax-free and Fidelity Convertible 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 Schwab Tax-free with a short position of Fidelity Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Tax-free and Fidelity Convertible.

Diversification Opportunities for Schwab Tax-free and Fidelity Convertible

-0.12

Correlation Coefficient

Schwab Tax-free  Fidelity Convertible

Good diversification

The 3 months correlation between Schwab and Fidelity is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Tax Free Bond and Fidelity Vertible Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Convertible and Schwab Tax-free 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 Schwab Tax Free Bond are associated (or correlated) with Fidelity Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Convertible has no effect on the direction of Schwab Tax-free i.e., Schwab Tax-free and Fidelity Convertible go up and down completely randomly.

Pair Corralation between Schwab Tax-free and Fidelity Convertible

Assuming the 90 days horizon Schwab Tax Free Bond is expected to generate 0.2 times more return on investment than Fidelity Convertible. However, Schwab Tax Free Bond is 4.89 times less risky than Fidelity Convertible. It trades about 0.06 of its potential returns per unit of risk. Fidelity Vertible Securities is currently generating about -0.12 per unit of risk. If you would invest  1,079  in Schwab Tax Free Bond on December 21, 2024 and sell it today you would earn a total of  8.00  from holding Schwab Tax Free Bond or generate 0.74% return on investment over 90 days.

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

Schwab Tax Free Bond  vs.  Fidelity Vertible Securities

Schwab Tax Free

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Tax Free Bond are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Convertible

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Vertible Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Schwab Tax-free and Fidelity Convertible

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

The idea behind Schwab Tax Free Bond and Fidelity Vertible Securities 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.