Correlation Between Fidelity Conservative and Vanguard Limited-term

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

By analyzing existing cross correlation between Fidelity Servative Income and Vanguard Limited Term Tax Exempt, you can compare the effects of market volatilities on Fidelity Conservative and Vanguard Limited-term 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 Conservative with a short position of Vanguard Limited-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Conservative and Vanguard Limited-term.

Diversification Opportunities for Fidelity Conservative and Vanguard Limited-term

0.25

Correlation Coefficient

Fidelity Conservative  Vanguard Limited-term

Modest diversification

The 3 months correlation between Fidelity and Vanguard is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Servative Income and Vanguard Limited Term Tax Exem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Limited Term and Fidelity Conservative 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 Servative Income are associated (or correlated) with Vanguard Limited-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Limited Term has no effect on the direction of Fidelity Conservative i.e., Fidelity Conservative and Vanguard Limited-term go up and down completely randomly.

Pair Corralation between Fidelity Conservative and Vanguard Limited-term

Assuming the 90 days horizon Fidelity Conservative is expected to generate 1.1 times less return on investment than Vanguard Limited-term. But when comparing it to its historical volatility, Fidelity Servative Income is 1.58 times less risky than Vanguard Limited-term. It trades about 0.21 of its potential returns per unit of risk. Vanguard Limited Term Tax Exempt is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,029  in Vanguard Limited Term Tax Exempt on August 31, 2024 and sell it today you would earn a total of  62.00  from holding Vanguard Limited Term Tax Exempt or generate 6.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.73%
Values	Daily Returns

Fidelity Servative Income  vs.  Vanguard Limited Term Tax Exem

Fidelity Servative Income

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Servative Income are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fidelity Conservative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Limited Term

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Limited Term Tax Exempt are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Limited-term 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 Conservative and Vanguard Limited-term

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

The idea behind Fidelity Servative Income and Vanguard Limited Term Tax Exempt 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.