Correlation Between New Jersey and Fidelity Pennsylvania

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

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

Diversification Opportunities for New Jersey and Fidelity Pennsylvania

0.98

Correlation Coefficient

New Jersey  Fidelity Pennsylvania

Almost no diversification

The 3 months correlation between New and Fidelity is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding New Jersey Tax Free and Fidelity Pennsylvania Municipa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Pennsylvania and New Jersey 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 New Jersey Tax Free are associated (or correlated) with Fidelity Pennsylvania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Pennsylvania has no effect on the direction of New Jersey i.e., New Jersey and Fidelity Pennsylvania go up and down completely randomly.

Pair Corralation between New Jersey and Fidelity Pennsylvania

Assuming the 90 days horizon New Jersey Tax Free is expected to generate 1.07 times more return on investment than Fidelity Pennsylvania. However, New Jersey is 1.07 times more volatile than Fidelity Pennsylvania Municipal. It trades about 0.08 of its potential returns per unit of risk. Fidelity Pennsylvania Municipal is currently generating about 0.08 per unit of risk. If you would invest  1,140  in New Jersey Tax Free on September 2, 2024 and sell it today you would earn a total of  14.00  from holding New Jersey Tax Free or generate 1.23% return on investment over 90 days.

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

New Jersey Tax Free  vs.  Fidelity Pennsylvania Municipa

New Jersey Tax

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Jersey Tax Free are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, New Jersey is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Pennsylvania

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Pennsylvania Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Pennsylvania is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New Jersey and Fidelity Pennsylvania

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

The idea behind New Jersey Tax Free and Fidelity Pennsylvania Municipal 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.