Correlation Between Fidelity 500 and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Fidelity 500 and Vanguard 500 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 Vanguard 500 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 Vanguard 500 Index, you can compare the effects of market volatilities on Fidelity 500 and Vanguard 500 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 Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity 500 and Vanguard 500.
Diversification Opportunities for Fidelity 500 and Vanguard 500
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Fidelity and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity 500 Index and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index 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 Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Fidelity 500 i.e., Fidelity 500 and Vanguard 500 go up and down completely randomly.
Pair Corralation between Fidelity 500 and Vanguard 500
Assuming the 90 days horizon Fidelity 500 Index is expected to generate 1.0 times more return on investment than Vanguard 500. However, Fidelity 500 Index is as risky as Vanguard 500. It trades about 0.11 of its potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.11 per unit of risk. If you would invest 13,289 in Fidelity 500 Index on August 30, 2024 and sell it today you would earn a total of 7,541 from holding Fidelity 500 Index or generate 56.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity 500 Index vs. Vanguard 500 Index
Performance |
| Timeline |
| Fidelity 500 Index |
| Vanguard 500 Index |
Fidelity 500 and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity 500 and Vanguard 500
The main advantage of trading using opposite Fidelity 500 and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity 500 position performs unexpectedly, Vanguard 500 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 Vanguard 500 will offset losses from the drop in Vanguard 500'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 |
| Vanguard 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Windsor Ii | Vanguard 500 vs. Vanguard Small Cap Index |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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