Correlation Between Financial Services and Fidelity Advisor

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

By analyzing existing cross correlation between Financial Services Portfolio and Fidelity Advisor Utilities, you can compare the effects of market volatilities on Financial Services 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 Financial Services with a short position of Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Fidelity Advisor.

Diversification Opportunities for Financial Services and Fidelity Advisor

0.65

Correlation Coefficient

Financial Services  Fidelity Advisor

Poor diversification

The 3 months correlation between Financial and Fidelity is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Portfolio and Fidelity Advisor Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Uti and Financial Services 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 Financial Services Portfolio 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 Uti has no effect on the direction of Financial Services i.e., Financial Services and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Financial Services and Fidelity Advisor

Assuming the 90 days horizon Financial Services Portfolio is expected to generate 1.16 times more return on investment than Fidelity Advisor. However, Financial Services is 1.16 times more volatile than Fidelity Advisor Utilities. It trades about 0.16 of its potential returns per unit of risk. Fidelity Advisor Utilities is currently generating about 0.05 per unit of risk. If you would invest  1,416  in Financial Services Portfolio on September 16, 2024 and sell it today you would earn a total of  196.00  from holding Financial Services Portfolio or generate 13.84% return on investment over 90 days.

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

Financial Services Portfolio  vs.  Fidelity Advisor Utilities

Financial Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Advisor Uti

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Utilities are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Advisor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Services and Fidelity Advisor

The main advantage of trading using opposite Financial Services and Fidelity Advisor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services 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 Financial Services Portfolio and Fidelity Advisor Utilities 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.