Correlation Between Equity Income and Fidelity Trend

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

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

Diversification Opportunities for Equity Income and Fidelity Trend

0.75

Correlation Coefficient

Equity Income  Fidelity Trend

Poor diversification

The 3 months correlation between Equity and Fidelity is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Fidelity Trend Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Trend and Equity Income 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 Equity Income Fund are associated (or correlated) with Fidelity Trend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Trend has no effect on the direction of Equity Income i.e., Equity Income and Fidelity Trend go up and down completely randomly.

Pair Corralation between Equity Income and Fidelity Trend

Assuming the 90 days horizon Equity Income is expected to generate 17.75 times less return on investment than Fidelity Trend. But when comparing it to its historical volatility, Equity Income Fund is 2.0 times less risky than Fidelity Trend. It trades about 0.03 of its potential returns per unit of risk. Fidelity Trend Fund is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  18,455  in Fidelity Trend Fund on September 15, 2024 and sell it today you would earn a total of  3,356  from holding Fidelity Trend Fund or generate 18.18% return on investment over 90 days.

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

Equity Income Fund  vs.  Fidelity Trend Fund

Equity Income

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Equity Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Trend

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Trend Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Trend showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Equity Income and Fidelity Trend

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

The idea behind Equity Income Fund and Fidelity Trend Fund 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.