Correlation Between Fidelity Small and M Large

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

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

Diversification Opportunities for Fidelity Small and M Large

0.75

Correlation Coefficient

Fidelity Small  M Large

Poor diversification

The 3 months correlation between Fidelity and MTCGX is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Small Cap and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap and Fidelity Small 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 Small Cap are associated (or correlated) with M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Fidelity Small i.e., Fidelity Small and M Large go up and down completely randomly.

Pair Corralation between Fidelity Small and M Large

Assuming the 90 days horizon Fidelity Small is expected to generate 3.12 times less return on investment than M Large. In addition to that, Fidelity Small is 1.05 times more volatile than M Large Cap. It trades about 0.03 of its total potential returns per unit of risk. M Large Cap is currently generating about 0.09 per unit of volatility. If you would invest  2,859  in M Large Cap on September 25, 2024 and sell it today you would earn a total of  866.00  from holding M Large Cap or generate 30.29% return on investment over 90 days.

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

Fidelity Small Cap  vs.  M Large Cap

Fidelity Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

M Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, M Large 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 Small and M Large

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

The idea behind Fidelity Small Cap and M Large Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.