Correlation Between Fidelity 500 and The Arbitrage
Can any of the company-specific risk be diversified away by investing in both Fidelity 500 and The Arbitrage 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 500 and The Arbitrage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity 500 Index and The Arbitrage Credit, you can compare the effects of market volatilities on Fidelity 500 and The Arbitrage 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 500 with a short position of The Arbitrage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity 500 and The Arbitrage.
Diversification Opportunities for Fidelity 500 and The Arbitrage
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fidelity and THE is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity 500 Index and The Arbitrage Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Credit and Fidelity 500 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 500 Index are associated (or correlated) with The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Credit has no effect on the direction of Fidelity 500 i.e., Fidelity 500 and The Arbitrage go up and down completely randomly.
Pair Corralation between Fidelity 500 and The Arbitrage
Assuming the 90 days horizon Fidelity 500 Index is expected to generate 6.87 times more return on investment than The Arbitrage. However, Fidelity 500 is 6.87 times more volatile than The Arbitrage Credit. It trades about 0.15 of its potential returns per unit of risk. The Arbitrage Credit is currently generating about 0.21 per unit of risk. If you would invest 15,615 in Fidelity 500 Index on August 25, 2024 and sell it today you would earn a total of 5,080 from holding Fidelity 500 Index or generate 32.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity 500 Index vs. The Arbitrage Credit
Performance |
| Timeline |
| Fidelity 500 Index |
| Arbitrage Credit |
Fidelity 500 and The Arbitrage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity 500 and The Arbitrage
The main advantage of trading using opposite Fidelity 500 and The Arbitrage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity 500 position performs unexpectedly, The Arbitrage 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 The Arbitrage will offset losses from the drop in The Arbitrage's long position.| Fidelity 500 vs. Fidelity Total Market | Fidelity 500 vs. Fidelity Extended Market | Fidelity 500 vs. Fidelity Zero Total | Fidelity 500 vs. Fidelity Small Cap |
| The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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