Correlation Between Small Cap and Fidelity Canada

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

By analyzing existing cross correlation between Small Cap Stock and Fidelity Canada Fund, you can compare the effects of market volatilities on Small Cap and Fidelity Canada 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 Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Fidelity Canada.

Diversification Opportunities for Small Cap and Fidelity Canada

0.89

Correlation Coefficient

Small Cap  Fidelity Canada

Very poor diversification

The 3 months correlation between Small and Fidelity is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Fidelity Canada Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Canada 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 Stock are associated (or correlated) with Fidelity Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Canada has no effect on the direction of Small Cap i.e., Small Cap and Fidelity Canada go up and down completely randomly.

Pair Corralation between Small Cap and Fidelity Canada

Assuming the 90 days horizon Small Cap is expected to generate 1.57 times less return on investment than Fidelity Canada. In addition to that, Small Cap is 1.46 times more volatile than Fidelity Canada Fund. It trades about 0.08 of its total potential returns per unit of risk. Fidelity Canada Fund is currently generating about 0.19 per unit of volatility. If you would invest  6,580  in Fidelity Canada Fund on October 27, 2024 and sell it today you would earn a total of  170.00  from holding Fidelity Canada Fund or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Small Cap Stock  vs.  Fidelity Canada Fund

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. 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 Canada

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Canada Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Canada 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 Canada

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

The idea behind Small Cap Stock and Fidelity Canada 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.