Correlation Between Fidelity Inflation and Vanguard Inflation

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

By analyzing existing cross correlation between Fidelity Inflation Protected Bond and Vanguard Inflation Protected Securities, you can compare the effects of market volatilities on Fidelity Inflation and Vanguard Inflation 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 Inflation with a short position of Vanguard Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Inflation and Vanguard Inflation.

Diversification Opportunities for Fidelity Inflation and Vanguard Inflation

1.0

Correlation Coefficient

Fidelity Inflation  Vanguard Inflation

No risk reduction

The 3 months correlation between Fidelity and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Inflation Protected B and Vanguard Inflation Protected S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Inflation and Fidelity Inflation 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 Inflation Protected Bond are associated (or correlated) with Vanguard Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Inflation has no effect on the direction of Fidelity Inflation i.e., Fidelity Inflation and Vanguard Inflation go up and down completely randomly.

Pair Corralation between Fidelity Inflation and Vanguard Inflation

Assuming the 90 days horizon Fidelity Inflation Protected Bond is expected to generate 0.98 times more return on investment than Vanguard Inflation. However, Fidelity Inflation Protected Bond is 1.02 times less risky than Vanguard Inflation. It trades about -0.08 of its potential returns per unit of risk. Vanguard Inflation Protected Securities is currently generating about -0.08 per unit of risk. If you would invest  930.00  in Fidelity Inflation Protected Bond on September 13, 2024 and sell it today you would lose (12.00) from holding Fidelity Inflation Protected Bond or give up 1.29% of portfolio value over 90 days.

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

Fidelity Inflation Protected B  vs.  Vanguard Inflation Protected S

Fidelity Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Inflation Protected Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Inflation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Inflation Protected Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Inflation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fidelity Inflation and Vanguard Inflation

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

The idea behind Fidelity Inflation Protected Bond and Vanguard Inflation Protected Securities 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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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.