Correlation Between Large Cap and Fidelity Municipal
Can any of the company-specific risk be diversified away by investing in both Large Cap and Fidelity Municipal 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 Large Cap and Fidelity Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Fund and Fidelity Municipal Income, you can compare the effects of market volatilities on Large Cap and Fidelity Municipal 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 Large Cap with a short position of Fidelity Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Fidelity Municipal.
Diversification Opportunities for Large Cap and Fidelity Municipal
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between LARGE and Fidelity is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Fidelity Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Municipal Income and Large Cap 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 Large Cap Fund are associated (or correlated) with Fidelity Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Municipal Income has no effect on the direction of Large Cap i.e., Large Cap and Fidelity Municipal go up and down completely randomly.
Pair Corralation between Large Cap and Fidelity Municipal
Assuming the 90 days horizon Large Cap Fund is expected to under-perform the Fidelity Municipal. In addition to that, Large Cap is 1.46 times more volatile than Fidelity Municipal Income. It trades about -0.05 of its total potential returns per unit of risk. Fidelity Municipal Income is currently generating about -0.02 per unit of volatility. If you would invest 2,175 in Fidelity Municipal Income on October 26, 2024 and sell it today you would lose (43.00) from holding Fidelity Municipal Income or give up 1.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.19% |
| Values | Daily Returns |
Large Cap Fund vs. Fidelity Municipal Income
Performance |
| Timeline |
| Large Cap Fund |
| Fidelity Municipal Income |
Large Cap and Fidelity Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Fidelity Municipal
The main advantage of trading using opposite Large Cap and Fidelity Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Fidelity Municipal 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 Municipal will offset losses from the drop in Fidelity Municipal's long position.| Large Cap vs. Wasatch Large Cap | Large Cap vs. Loomis Sayles Bond | Large Cap vs. Harbor International Fund | Large Cap vs. Equity Series Class |
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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