Correlation Between First Trust and Fidelity Contrafund

Can any of the company-specific risk be diversified away by investing in both First Trust and Fidelity Contrafund 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 First Trust and Fidelity Contrafund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Specialty and Fidelity Contrafund, you can compare the effects of market volatilities on First Trust and Fidelity Contrafund 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 First Trust with a short position of Fidelity Contrafund. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Fidelity Contrafund.

Diversification Opportunities for First Trust and Fidelity Contrafund

0.71

Correlation Coefficient

First Trust  Fidelity Contrafund

Poor diversification

The 3 months correlation between First and Fidelity is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Fidelity Contrafund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Contrafund and First Trust 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 First Trust Specialty are associated (or correlated) with Fidelity Contrafund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Contrafund has no effect on the direction of First Trust i.e., First Trust and Fidelity Contrafund go up and down completely randomly.

Pair Corralation between First Trust and Fidelity Contrafund

Considering the 90-day investment horizon First Trust Specialty is expected to generate 0.87 times more return on investment than Fidelity Contrafund. However, First Trust Specialty is 1.15 times less risky than Fidelity Contrafund. It trades about 0.12 of its potential returns per unit of risk. Fidelity Contrafund is currently generating about 0.07 per unit of risk. If you would invest  404.00  in First Trust Specialty on September 19, 2024 and sell it today you would earn a total of  24.00  from holding First Trust Specialty or generate 5.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

First Trust Specialty  vs.  Fidelity Contrafund

First Trust Specialty

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Contrafund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Contrafund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Contrafund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Fidelity Contrafund

The main advantage of trading using opposite First Trust and Fidelity Contrafund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Fidelity Contrafund 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 Contrafund will offset losses from the drop in Fidelity Contrafund's long position.

The idea behind First Trust Specialty and Fidelity Contrafund 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.