Correlation Between Vanguard European and Fidelity Europe

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

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

Diversification Opportunities for Vanguard European and Fidelity Europe

1.0

Correlation Coefficient

Vanguard European  Fidelity Europe

No risk reduction

The 3 months correlation between Vanguard and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock and Fidelity Europe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Europe and Vanguard European 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 Vanguard European Stock are associated (or correlated) with Fidelity Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Europe has no effect on the direction of Vanguard European i.e., Vanguard European and Fidelity Europe go up and down completely randomly.

Pair Corralation between Vanguard European and Fidelity Europe

Assuming the 90 days horizon Vanguard European is expected to generate 1.06 times less return on investment than Fidelity Europe. But when comparing it to its historical volatility, Vanguard European Stock is 1.01 times less risky than Fidelity Europe. It trades about 0.19 of its potential returns per unit of risk. Fidelity Europe Fund is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,468  in Fidelity Europe Fund on December 30, 2024 and sell it today you would earn a total of  429.00  from holding Fidelity Europe Fund or generate 12.37% return on investment over 90 days.

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

Vanguard European Stock  vs.  Fidelity Europe Fund

Vanguard European Stock

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard European Stock are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Fidelity Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Europe Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard European and Fidelity Europe

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

The idea behind Vanguard European Stock and Fidelity Europe 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.