Correlation Between Vanguard Financials and Fidelity Advisor
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials 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 Vanguard Financials and Fidelity Advisor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and Fidelity Advisor Financial, you can compare the effects of market volatilities on Vanguard Financials 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 Vanguard Financials with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Fidelity Advisor.
Diversification Opportunities for Vanguard Financials and Fidelity Advisor
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Fidelity Advisor Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Fin and Vanguard Financials 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 Vanguard Financials Index 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 Fin has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Fidelity Advisor go up and down completely randomly.
Pair Corralation between Vanguard Financials and Fidelity Advisor
Assuming the 90 days horizon Vanguard Financials is expected to generate 1.03 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, Vanguard Financials Index is 1.13 times less risky than Fidelity Advisor. It trades about 0.31 of its potential returns per unit of risk. Fidelity Advisor Financial is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,213 in Fidelity Advisor Financial on September 4, 2024 and sell it today you would earn a total of 364.00 from holding Fidelity Advisor Financial or generate 11.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Financials Index vs. Fidelity Advisor Financial
Performance |
| Timeline |
| Vanguard Financials Index |
| Fidelity Advisor Fin |
Vanguard Financials and Fidelity Advisor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and Fidelity Advisor
The main advantage of trading using opposite Vanguard Financials and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials 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 Vanguard Financials Index and Fidelity Advisor Financial 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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