Correlation Between Fidelity Tax-free and Fidelity Municipal

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

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

Diversification Opportunities for Fidelity Tax-free and Fidelity Municipal

1.0

Correlation Coefficient

Fidelity Tax-free  Fidelity Municipal

No risk reduction

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

Pair Corralation between Fidelity Tax-free and Fidelity Municipal

Assuming the 90 days horizon Fidelity Tax Free Bond is expected to generate 1.06 times more return on investment than Fidelity Municipal. However, Fidelity Tax-free is 1.06 times more volatile than Fidelity Municipal Income. It trades about 0.06 of its potential returns per unit of risk. Fidelity Municipal Income is currently generating about 0.06 per unit of risk. If you would invest  1,101  in Fidelity Tax Free Bond on September 3, 2024 and sell it today you would earn a total of  11.00  from holding Fidelity Tax Free Bond or generate 1.0% return on investment over 90 days.

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

Fidelity Tax Free Bond  vs.  Fidelity Municipal Income

Fidelity Tax Free

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Tax Free Bond are ranked lower than 4 (%) 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.

Fidelity Municipal Income

Risk-Adjusted Performance

5 of 100

Modest

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

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

The idea behind Fidelity Tax Free Bond and Fidelity Municipal Income 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.