Correlation Between Fidelity Flex and Fidelity Tax-free

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

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

Diversification Opportunities for Fidelity Flex and Fidelity Tax-free

-0.12

Correlation Coefficient

Fidelity Flex  Fidelity Tax-free

Good diversification

The 3 months correlation between Fidelity and Fidelity is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Flex Small and Fidelity Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Tax Free and Fidelity Flex 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 Flex Small are associated (or correlated) with Fidelity Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Tax Free has no effect on the direction of Fidelity Flex i.e., Fidelity Flex and Fidelity Tax-free go up and down completely randomly.

Pair Corralation between Fidelity Flex and Fidelity Tax-free

Assuming the 90 days horizon Fidelity Flex Small is expected to generate 5.15 times more return on investment than Fidelity Tax-free. However, Fidelity Flex is 5.15 times more volatile than Fidelity Tax Free Bond. It trades about 0.06 of its potential returns per unit of risk. Fidelity Tax Free Bond is currently generating about 0.08 per unit of risk. If you would invest  1,243  in Fidelity Flex Small on September 5, 2024 and sell it today you would earn a total of  504.00  from holding Fidelity Flex Small or generate 40.55% return on investment over 90 days.

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

Fidelity Flex Small  vs.  Fidelity Tax Free Bond

Fidelity Flex Small

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Flex Small are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Flex showed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Tax Free

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Tax Free Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Fidelity Tax-free 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 Flex and Fidelity Tax-free

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

The idea behind Fidelity Flex Small and Fidelity Tax Free Bond 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.