Correlation Between Fidelity 500 and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both Fidelity 500 and Vanguard Materials 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 Materials 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 Materials Index, you can compare the effects of market volatilities on Fidelity 500 and Vanguard Materials 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 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity 500 and Vanguard Materials.
Diversification Opportunities for Fidelity 500 and Vanguard Materials
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fidelity and Vanguard is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity 500 Index and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials 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 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Fidelity 500 i.e., Fidelity 500 and Vanguard Materials go up and down completely randomly.
Pair Corralation between Fidelity 500 and Vanguard Materials
Assuming the 90 days horizon Fidelity 500 Index is expected to generate 0.99 times more return on investment than Vanguard Materials. However, Fidelity 500 Index is 1.01 times less risky than Vanguard Materials. It trades about 0.15 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.09 per unit of risk. If you would invest 20,236 in Fidelity 500 Index on August 28, 2024 and sell it today you would earn a total of 531.00 from holding Fidelity 500 Index or generate 2.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Fidelity 500 Index vs. Vanguard Materials Index
Performance |
| Timeline |
| Fidelity 500 Index |
| Vanguard Materials Index |
Fidelity 500 and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity 500 and Vanguard Materials
The main advantage of trading using opposite Fidelity 500 and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity 500 position performs unexpectedly, Vanguard Materials 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 Materials will offset losses from the drop in Vanguard Materials' 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 Materials vs. Vanguard Emerging Markets | Vanguard Materials vs. Vanguard Total International | Vanguard Materials vs. Vanguard Reit Index | Vanguard Materials vs. Vanguard Industrials 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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