Correlation Between Us Government and Fidelity Government

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

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

Diversification Opportunities for Us Government and Fidelity Government

0.99

Correlation Coefficient

Us Government  Fidelity Government

No risk reduction

The 3 months correlation between UGSFX and Fidelity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Fidelity Government Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Government and Us Government 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 Us Government Securities are associated (or correlated) with Fidelity Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Government has no effect on the direction of Us Government i.e., Us Government and Fidelity Government go up and down completely randomly.

Pair Corralation between Us Government and Fidelity Government

Assuming the 90 days horizon Us Government Securities is expected to under-perform the Fidelity Government. But the mutual fund apears to be less risky and, when comparing its historical volatility, Us Government Securities is 1.04 times less risky than Fidelity Government. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Fidelity Government Income is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  932.00  in Fidelity Government Income on September 1, 2024 and sell it today you would lose (12.00) from holding Fidelity Government Income or give up 1.29% of portfolio value over 90 days.

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

Us Government Securities  vs.  Fidelity Government Income

Us Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Government Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Fidelity Government

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

The idea behind Us Government Securities and Fidelity Government 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.