Correlation Between Fidelity Extended and Fidelity 500

Can any of the company-specific risk be diversified away by investing in both Fidelity Extended and Fidelity 500 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 Extended and Fidelity 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fidelity Extended Market and Fidelity 500 Index, you can compare the effects of market volatilities on Fidelity Extended and Fidelity 500 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 Extended with a short position of Fidelity 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Extended and Fidelity 500.

Diversification Opportunities for Fidelity Extended and Fidelity 500

0.95

Correlation Coefficient

Fidelity Extended  Fidelity 500

Almost no diversification

The 3 months correlation between Fidelity and Fidelity is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Extended Market and Fidelity 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity 500 Index and Fidelity Extended 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 Extended Market are associated (or correlated) with Fidelity 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity 500 Index has no effect on the direction of Fidelity Extended i.e., Fidelity Extended and Fidelity 500 go up and down completely randomly.

Pair Corralation between Fidelity Extended and Fidelity 500

Assuming the 90 days horizon Fidelity Extended Market is expected to generate 1.47 times more return on investment than Fidelity 500. However, Fidelity Extended is 1.47 times more volatile than Fidelity 500 Index. It trades about 0.25 of its potential returns per unit of risk. Fidelity 500 Index is currently generating about 0.19 per unit of risk. If you would invest  8,340  in Fidelity Extended Market on August 31, 2024 and sell it today you would earn a total of  1,455  from holding Fidelity Extended Market or generate 17.45% return on investment over 90 days.

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

Fidelity Extended Market  vs.  Fidelity 500 Index

Fidelity Extended Market

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Extended Market are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Extended showed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity 500 Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity 500 Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Fidelity 500 may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Fidelity Extended and Fidelity 500

The main advantage of trading using opposite Fidelity Extended and Fidelity 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Extended position performs unexpectedly, Fidelity 500 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 500 will offset losses from the drop in Fidelity 500's long position.

The idea behind Fidelity Extended Market and Fidelity 500 Index 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.