Correlation Between Fidelity International and Brown Capital
Can any of the company-specific risk be diversified away by investing in both Fidelity International and Brown Capital 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 International and Brown Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity International Growth and The Brown Capital, you can compare the effects of market volatilities on Fidelity International and Brown Capital 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 International with a short position of Brown Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity International and Brown Capital.
Diversification Opportunities for Fidelity International and Brown Capital
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fidelity and Brown is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity International Growth and The Brown Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Capital and Fidelity International 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 International Growth are associated (or correlated) with Brown Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Capital has no effect on the direction of Fidelity International i.e., Fidelity International and Brown Capital go up and down completely randomly.
Pair Corralation between Fidelity International and Brown Capital
Assuming the 90 days horizon Fidelity International is expected to generate 1.04 times less return on investment than Brown Capital. But when comparing it to its historical volatility, Fidelity International Growth is 1.54 times less risky than Brown Capital. It trades about 0.05 of its potential returns per unit of risk. The Brown Capital is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,538 in The Brown Capital on September 12, 2024 and sell it today you would earn a total of 212.00 from holding The Brown Capital or generate 13.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity International Growth vs. The Brown Capital
Performance |
| Timeline |
| Fidelity International |
| Brown Capital |
Fidelity International and Brown Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity International and Brown Capital
The main advantage of trading using opposite Fidelity International and Brown Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity International position performs unexpectedly, Brown Capital 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 Brown Capital will offset losses from the drop in Brown Capital's long position.The idea behind Fidelity International Growth and The Brown Capital 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.
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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