Correlation Between Fidelity Equity-income and Fidelity Contrafund
Can any of the company-specific risk be diversified away by investing in both Fidelity Equity-income and Fidelity Contrafund 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 Equity-income and Fidelity Contrafund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity Equity Income Fund and Fidelity Contrafund, you can compare the effects of market volatilities on Fidelity Equity-income and Fidelity Contrafund 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 Equity-income with a short position of Fidelity Contrafund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Equity-income and Fidelity Contrafund.
Diversification Opportunities for Fidelity Equity-income and Fidelity Contrafund
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fidelity and Fidelity is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Equity Income Fund and Fidelity Contrafund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Contrafund and Fidelity Equity-income 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 Equity Income Fund are associated (or correlated) with Fidelity Contrafund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Contrafund has no effect on the direction of Fidelity Equity-income i.e., Fidelity Equity-income and Fidelity Contrafund go up and down completely randomly.
Pair Corralation between Fidelity Equity-income and Fidelity Contrafund
Assuming the 90 days horizon Fidelity Equity Income Fund is expected to under-perform the Fidelity Contrafund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity Equity Income Fund is 1.54 times less risky than Fidelity Contrafund. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Fidelity Contrafund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,183 in Fidelity Contrafund on October 26, 2024 and sell it today you would earn a total of 49.00 from holding Fidelity Contrafund or generate 2.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity Equity Income Fund vs. Fidelity Contrafund
Performance |
| Timeline |
| Fidelity Equity Income |
| Fidelity Contrafund |
Fidelity Equity-income and Fidelity Contrafund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity Equity-income and Fidelity Contrafund
The main advantage of trading using opposite Fidelity Equity-income and Fidelity Contrafund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Equity-income position performs unexpectedly, Fidelity Contrafund 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 Contrafund will offset losses from the drop in Fidelity Contrafund's long position.The idea behind Fidelity Equity Income Fund and Fidelity Contrafund 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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