Correlation Between Common Stock and Fidelity Municipal
Can any of the company-specific risk be diversified away by investing in both Common Stock 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 Common Stock and Fidelity Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Common Stock Fund and Fidelity Municipal Income, you can compare the effects of market volatilities on Common Stock 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 Common Stock with a short position of Fidelity Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Common Stock and Fidelity Municipal.
Diversification Opportunities for Common Stock and Fidelity Municipal
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Common and Fidelity is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Common Stock 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 Common Stock 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 Common Stock 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 Common Stock i.e., Common Stock and Fidelity Municipal go up and down completely randomly.
Pair Corralation between Common Stock and Fidelity Municipal
Assuming the 90 days horizon Common Stock Fund is expected to generate 1.34 times more return on investment than Fidelity Municipal. However, Common Stock is 1.34 times more volatile than Fidelity Municipal Income. It trades about 0.03 of its potential returns per unit of risk. Fidelity Municipal Income is currently generating about -0.02 per unit of risk. If you would invest 3,788 in Common Stock Fund on October 26, 2024 and sell it today you would earn a total of 113.00 from holding Common Stock Fund or generate 2.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.19% |
| Values | Daily Returns |
Common Stock Fund vs. Fidelity Municipal Income
Performance |
| Timeline |
| Common Stock |
| Fidelity Municipal Income |
Common Stock and Fidelity Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Common Stock and Fidelity Municipal
The main advantage of trading using opposite Common Stock and Fidelity Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Common Stock 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.| Common Stock vs. Large Cap Fund | Common Stock vs. Madison Mid Cap | Common Stock vs. Royce Premier Fund | Common Stock vs. The Jensen Portfolio |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |