Correlation Between First Trust and Fidelity Small

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

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

Diversification Opportunities for First Trust and Fidelity Small

0.95

Correlation Coefficient

First Trust  Fidelity Small

Almost no diversification

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

Pair Corralation between First Trust and Fidelity Small

Allowing for the 90-day total investment horizon First Trust is expected to generate 1.17 times less return on investment than Fidelity Small. In addition to that, First Trust is 1.09 times more volatile than Fidelity Small Mid Cap. It trades about 0.09 of its total potential returns per unit of risk. Fidelity Small Mid Cap is currently generating about 0.11 per unit of volatility. If you would invest  2,710  in Fidelity Small Mid Cap on August 30, 2024 and sell it today you would earn a total of  214.00  from holding Fidelity Small Mid Cap or generate 7.9% return on investment over 90 days.

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

First Trust Dorsey  vs.  Fidelity Small Mid Cap

First Trust Dorsey

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Fidelity Small Mid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Small Mid Cap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Fidelity Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with First Trust and Fidelity Small

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

The idea behind First Trust Dorsey and Fidelity Small Mid 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.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.