Can any of the company-specific risk be diversified away by investing in both Fidelity Stock and Vanguard Small 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 Stock and Vanguard Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity Stock Selector and Vanguard Small Cap Index, you can compare the effects of market volatilities on Fidelity Stock and Vanguard Small 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 Stock with a short position of Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Stock and Vanguard Small.
Diversification Opportunities for Fidelity Stock and Vanguard Small
The 3 months correlation between Fidelity and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Stock Selector and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Fidelity Stock 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 Stock Selector are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Fidelity Stock i.e., Fidelity Stock and Vanguard Small go up and down completely randomly.
Pair Corralation between Fidelity Stock and Vanguard Small
Assuming the 90 days horizon Fidelity Stock Selector is expected to generate 1.05 times more return on investment than Vanguard Small. However, Fidelity Stock is 1.05 times more volatile than Vanguard Small Cap Index. It trades about 0.04 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.01 per unit of risk. If you would invest 3,532 in Fidelity Stock Selector on March 6, 2024 and sell it today you would earn a total of 70.00 from holding Fidelity Stock Selector or generate 1.98% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Stock Selector are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fidelity Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.