Correlation Between Fidelity Sustainable and Fidelity Quality
Can any of the company-specific risk be diversified away by investing in both Fidelity Sustainable and Fidelity Quality 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 Sustainable and Fidelity Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity Sustainable EUR and Fidelity Quality Income, you can compare the effects of market volatilities on Fidelity Sustainable and Fidelity Quality 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 Sustainable with a short position of Fidelity Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Sustainable and Fidelity Quality.
Diversification Opportunities for Fidelity Sustainable and Fidelity Quality
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fidelity and Fidelity is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Sustainable EUR and Fidelity Quality Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Quality Income and Fidelity Sustainable 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 Sustainable EUR are associated (or correlated) with Fidelity Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Quality Income has no effect on the direction of Fidelity Sustainable i.e., Fidelity Sustainable and Fidelity Quality go up and down completely randomly.
Pair Corralation between Fidelity Sustainable and Fidelity Quality
Assuming the 90 days trading horizon Fidelity Sustainable is expected to generate 10.49 times less return on investment than Fidelity Quality. But when comparing it to its historical volatility, Fidelity Sustainable EUR is 3.96 times less risky than Fidelity Quality. It trades about 0.11 of its potential returns per unit of risk. Fidelity Quality Income is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 100,100 in Fidelity Quality Income on August 29, 2024 and sell it today you would earn a total of 5,750 from holding Fidelity Quality Income or generate 5.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity Sustainable EUR vs. Fidelity Quality Income
Performance |
| Timeline |
| Fidelity Sustainable EUR |
| Fidelity Quality Income |
Fidelity Sustainable and Fidelity Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity Sustainable and Fidelity Quality
The main advantage of trading using opposite Fidelity Sustainable and Fidelity Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Sustainable position performs unexpectedly, Fidelity Quality 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 Quality will offset losses from the drop in Fidelity Quality's long position.The idea behind Fidelity Sustainable EUR and Fidelity Quality Income 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.
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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.
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