Correlation Between IShares Canadian and Fidelity Low

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

By analyzing existing cross correlation between iShares Canadian Universe and Fidelity Low Volatility, you can compare the effects of market volatilities on IShares Canadian and Fidelity Low 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 IShares Canadian with a short position of Fidelity Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and Fidelity Low.

Diversification Opportunities for IShares Canadian and Fidelity Low

0.6

Correlation Coefficient

IShares Canadian  Fidelity Low

Poor diversification

The 3 months correlation between IShares and Fidelity is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Universe and Fidelity Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Low Volatility and IShares Canadian 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 iShares Canadian Universe are associated (or correlated) with Fidelity Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Low Volatility has no effect on the direction of IShares Canadian i.e., IShares Canadian and Fidelity Low go up and down completely randomly.

Pair Corralation between IShares Canadian and Fidelity Low

Assuming the 90 days trading horizon iShares Canadian Universe is expected to generate 0.6 times more return on investment than Fidelity Low. However, iShares Canadian Universe is 1.67 times less risky than Fidelity Low. It trades about -0.11 of its potential returns per unit of risk. Fidelity Low Volatility is currently generating about -0.13 per unit of risk. If you would invest  2,858  in iShares Canadian Universe on October 6, 2024 and sell it today you would lose (21.00) from holding iShares Canadian Universe or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

iShares Canadian Universe  vs.  Fidelity Low Volatility

iShares Canadian Universe

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Universe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fidelity Low Volatility

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Low Volatility are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Fidelity Low is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Canadian and Fidelity Low

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

The idea behind iShares Canadian Universe and Fidelity Low Volatility 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.