Correlation Between Vanguard Financials and Fidelity Small

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

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

Diversification Opportunities for Vanguard Financials and Fidelity Small

0.91

Correlation Coefficient

Vanguard Financials  Fidelity Small

Almost no diversification

The 3 months correlation between Vanguard and Fidelity is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Fidelity Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Small Cap and Vanguard Financials 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 Vanguard Financials Index 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 Cap has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Fidelity Small go up and down completely randomly.

Pair Corralation between Vanguard Financials and Fidelity Small

Assuming the 90 days horizon Vanguard Financials Index is expected to under-perform the Fidelity Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Financials Index is 1.13 times less risky than Fidelity Small. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Fidelity Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,131  in Fidelity Small Cap on September 18, 2024 and sell it today you would earn a total of  32.00  from holding Fidelity Small Cap or generate 1.5% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Fidelity Small Cap

Vanguard Financials Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fidelity Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Fidelity Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Financials and Fidelity Small

The main advantage of trading using opposite Vanguard Financials and Fidelity Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials 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 Vanguard Financials Index and Fidelity Small 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.

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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.