Correlation Between Fidelity California and Fidelity Tax-free
Can any of the company-specific risk be diversified away by investing in both Fidelity California and Fidelity Tax-free 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 Fidelity California and Fidelity Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity California Limited and Fidelity Tax Free Bond, you can compare the effects of market volatilities on Fidelity California and Fidelity Tax-free 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 Fidelity California with a short position of Fidelity Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity California and Fidelity Tax-free.
Diversification Opportunities for Fidelity California and Fidelity Tax-free
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Fidelity and Fidelity is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity California Limited and Fidelity Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Tax Free and Fidelity California 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 Fidelity California Limited are associated (or correlated) with Fidelity Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Tax Free has no effect on the direction of Fidelity California i.e., Fidelity California and Fidelity Tax-free go up and down completely randomly.
Pair Corralation between Fidelity California and Fidelity Tax-free
Assuming the 90 days horizon Fidelity California is expected to generate 1.72 times less return on investment than Fidelity Tax-free. But when comparing it to its historical volatility, Fidelity California Limited is 2.01 times less risky than Fidelity Tax-free. It trades about 0.09 of its potential returns per unit of risk. Fidelity Tax Free Bond is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,014 in Fidelity Tax Free Bond on September 2, 2024 and sell it today you would earn a total of 98.00 from holding Fidelity Tax Free Bond or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity California Limited vs. Fidelity Tax Free Bond
Performance |
| Timeline |
| Fidelity California |
| Fidelity Tax Free |
Fidelity California and Fidelity Tax-free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity California and Fidelity Tax-free
The main advantage of trading using opposite Fidelity California and Fidelity Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity California position performs unexpectedly, Fidelity Tax-free 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 Tax-free will offset losses from the drop in Fidelity Tax-free's long position.The idea behind Fidelity California Limited and Fidelity Tax Free Bond 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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