Correlation Between Vanguard and Fidelity Small

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

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

Diversification Opportunities for Vanguard and Fidelity Small

0.99

Correlation Coefficient

Vanguard  Fidelity Small

No risk reduction

The 3 months correlation between Vanguard and Fidelity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and Fidelity Small Mid Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Small Mid and Vanguard 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 SP Small Cap are associated (or correlated) with Fidelity Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Small Mid has no effect on the direction of Vanguard i.e., Vanguard and Fidelity Small go up and down completely randomly.

Pair Corralation between Vanguard and Fidelity Small

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the Fidelity Small. In addition to that, Vanguard is 1.1 times more volatile than Fidelity Small Mid Factor. It trades about -0.27 of its total potential returns per unit of risk. Fidelity Small Mid Factor is currently generating about -0.23 per unit of volatility. If you would invest  4,342  in Fidelity Small Mid Factor on October 11, 2024 and sell it today you would lose (208.00) from holding Fidelity Small Mid Factor or give up 4.79% of portfolio value over 90 days.

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

Vanguard SP Small Cap  vs.  Fidelity Small Mid Factor

Vanguard SP Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fidelity Small Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Small Mid Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Fidelity Small is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard and Fidelity Small

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

The idea behind Vanguard SP Small Cap and Fidelity Small Mid Factor 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.