Correlation Between Fidelity International and Fidelity Japan
Can any of the company-specific risk be diversified away by investing in both Fidelity International and Fidelity Japan 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 International and Fidelity Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity International Small and Fidelity Japan Smaller, you can compare the effects of market volatilities on Fidelity International and Fidelity Japan 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 International with a short position of Fidelity Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity International and Fidelity Japan.
Diversification Opportunities for Fidelity International and Fidelity Japan
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fidelity and Fidelity is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity International Small and Fidelity Japan Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Japan Smaller and Fidelity International 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 International Small are associated (or correlated) with Fidelity Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Japan Smaller has no effect on the direction of Fidelity International i.e., Fidelity International and Fidelity Japan go up and down completely randomly.
Pair Corralation between Fidelity International and Fidelity Japan
Assuming the 90 days horizon Fidelity International is expected to generate 2.34 times less return on investment than Fidelity Japan. But when comparing it to its historical volatility, Fidelity International Small is 1.63 times less risky than Fidelity Japan. It trades about 0.04 of its potential returns per unit of risk. Fidelity Japan Smaller is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,443 in Fidelity Japan Smaller on September 4, 2024 and sell it today you would earn a total of 253.00 from holding Fidelity Japan Smaller or generate 17.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Fidelity International Small vs. Fidelity Japan Smaller
Performance |
| Timeline |
| Fidelity International |
| Fidelity Japan Smaller |
Fidelity International and Fidelity Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity International and Fidelity Japan
The main advantage of trading using opposite Fidelity International and Fidelity Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity International position performs unexpectedly, Fidelity Japan 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 Japan will offset losses from the drop in Fidelity Japan's long position.The idea behind Fidelity International Small and Fidelity Japan Smaller 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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