Correlation Between Vanguard FTSE and Fidelity Emerging

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

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

Diversification Opportunities for Vanguard FTSE and Fidelity Emerging

0.31

Correlation Coefficient

Vanguard FTSE  Fidelity Emerging

Weak diversification

The 3 months correlation between Vanguard and Fidelity is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and Fidelity Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Emerging Markets and Vanguard FTSE 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 FTSE Developed are associated (or correlated) with Fidelity Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Emerging Markets has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Fidelity Emerging go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Fidelity Emerging

Assuming the 90 days trading horizon Vanguard FTSE Developed is expected to under-perform the Fidelity Emerging. In addition to that, Vanguard FTSE is 1.43 times more volatile than Fidelity Emerging Markets. It trades about 0.0 of its total potential returns per unit of risk. Fidelity Emerging Markets is currently generating about 0.06 per unit of volatility. If you would invest  409.00  in Fidelity Emerging Markets on October 27, 2024 and sell it today you would earn a total of  9.00  from holding Fidelity Emerging Markets or generate 2.2% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  Fidelity Emerging Markets

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Fidelity Emerging Markets

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Emerging Markets are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fidelity Emerging is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard FTSE and Fidelity Emerging

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

The idea behind Vanguard FTSE Developed and Fidelity Emerging Markets 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.