Correlation Between Schwab Small-cap and Fidelity Advisor

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

By analyzing existing cross correlation between Schwab Small Cap Index and Fidelity Advisor Freedom, you can compare the effects of market volatilities on Schwab Small-cap 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 Schwab Small-cap with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Fidelity Advisor.

Diversification Opportunities for Schwab Small-cap and Fidelity Advisor

0.01

Correlation Coefficient

Schwab Small-cap  Fidelity Advisor

Significant diversification

The 3 months correlation between Schwab and Fidelity is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Fidelity Advisor Freedom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Freedom and Schwab 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 Schwab Small Cap Index 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 Freedom has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Schwab Small-cap and Fidelity Advisor

Assuming the 90 days horizon Schwab Small Cap Index is expected to under-perform the Fidelity Advisor. In addition to that, Schwab Small-cap is 2.46 times more volatile than Fidelity Advisor Freedom. It trades about -0.1 of its total potential returns per unit of risk. Fidelity Advisor Freedom is currently generating about 0.04 per unit of volatility. If you would invest  1,173  in Fidelity Advisor Freedom on December 21, 2024 and sell it today you would earn a total of  14.00  from holding Fidelity Advisor Freedom or generate 1.19% return on investment over 90 days.

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

Schwab Small Cap Index  vs.  Fidelity Advisor Freedom

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap Index 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.

Fidelity Advisor Freedom

Risk-Adjusted Performance

Insignificant

Over the last 90 days Fidelity Advisor Freedom has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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 Schwab Small-cap and Fidelity Advisor

The main advantage of trading using opposite Schwab Small-cap and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Small-cap 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 Schwab Small Cap Index and Fidelity Advisor Freedom 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 Global Correlations module to find global opportunities by holding instruments from different markets.