Correlation Between Fidelity Small and Large Cap

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Can any of the company-specific risk be diversified away by investing in both Fidelity Small and Large Cap 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 Small and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity Small Cap and Large Cap E, you can compare the effects of market volatilities on Fidelity Small and Large Cap 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 Small with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Small and Large Cap.

Diversification Opportunities for Fidelity Small and Large Cap

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Fidelity and Large is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Small Cap and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Fidelity Small 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 Small Cap are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Fidelity Small i.e., Fidelity Small and Large Cap go up and down completely randomly.

Pair Corralation between Fidelity Small and Large Cap

Assuming the 90 days horizon Fidelity Small Cap is expected to generate 1.76 times more return on investment than Large Cap. However, Fidelity Small is 1.76 times more volatile than Large Cap E. It trades about 0.24 of its potential returns per unit of risk. Large Cap E is currently generating about 0.24 per unit of risk. If you would invest  2,787  in Fidelity Small Cap on August 31, 2024 and sell it today you would earn a total of  245.00  from holding Fidelity Small Cap or generate 8.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Fidelity Small Cap  vs.  Large Cap E

 Performance 
       Timeline  
Fidelity Small Cap 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Small showed solid returns over the last few months and may actually be approaching a breakup point.
Large Cap E 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap E are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Fidelity Small and Large Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fidelity Small and Large Cap

The main advantage of trading using opposite Fidelity Small and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Small position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.
The idea behind Fidelity Small Cap and Large Cap E 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.
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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