Correlation Between Morningstar Municipal and Fidelity Advisor
Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and Fidelity Advisor 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 Morningstar Municipal and Fidelity Advisor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Municipal Bond and Fidelity Advisor Freedom, you can compare the effects of market volatilities on Morningstar Municipal and Fidelity Advisor 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 Morningstar Municipal with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and Fidelity Advisor.
Diversification Opportunities for Morningstar Municipal and Fidelity Advisor
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Morningstar and Fidelity is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Fidelity Advisor Freedom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Freedom and Morningstar Municipal 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 Morningstar Municipal Bond are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Freedom has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Fidelity Advisor go up and down completely randomly.
Pair Corralation between Morningstar Municipal and Fidelity Advisor
Assuming the 90 days horizon Morningstar Municipal is expected to generate 3.72 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, Morningstar Municipal Bond is 4.05 times less risky than Fidelity Advisor. It trades about 0.09 of its potential returns per unit of risk. Fidelity Advisor Freedom is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,311 in Fidelity Advisor Freedom on August 26, 2024 and sell it today you would earn a total of 424.00 from holding Fidelity Advisor Freedom or generate 32.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morningstar Municipal Bond vs. Fidelity Advisor Freedom
Performance |
| Timeline |
| Morningstar Municipal |
| Fidelity Advisor Freedom |
Morningstar Municipal and Fidelity Advisor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Municipal and Fidelity Advisor
The main advantage of trading using opposite Morningstar Municipal and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Municipal position performs unexpectedly, Fidelity Advisor 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 Fidelity Advisor will offset losses from the drop in Fidelity Advisor's long position.The idea behind Morningstar Municipal Bond and Fidelity Advisor Freedom 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.
| Fidelity Advisor vs. Transamerica Intermediate Muni | Fidelity Advisor vs. Oklahoma Municipal Fund | Fidelity Advisor vs. Morningstar Municipal Bond | Fidelity Advisor vs. Baird Strategic Municipal |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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