Correlation Between Vanguard Russell and Fidelity Small

Can any of the company-specific risk be diversified away by investing in both Vanguard Russell 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 Russell 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 Russell 2000 and Fidelity Small Mid Factor, you can compare the effects of market volatilities on Vanguard Russell 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 Russell with a short position of Fidelity Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Russell and Fidelity Small.

Diversification Opportunities for Vanguard Russell and Fidelity Small

0.99

Correlation Coefficient

Vanguard Russell  Fidelity Small

No risk reduction

The 3 months correlation between Vanguard and Fidelity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Russell 2000 and Fidelity Small Mid Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Small Mid and Vanguard Russell 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 Russell 2000 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 Vanguard Russell i.e., Vanguard Russell and Fidelity Small go up and down completely randomly.

Pair Corralation between Vanguard Russell and Fidelity Small

Assuming the 90 days horizon Vanguard Russell 2000 is expected to generate 1.27 times more return on investment than Fidelity Small. However, Vanguard Russell is 1.27 times more volatile than Fidelity Small Mid Factor. It trades about 0.17 of its potential returns per unit of risk. Fidelity Small Mid Factor is currently generating about 0.19 per unit of risk. If you would invest  32,912  in Vanguard Russell 2000 on September 1, 2024 and sell it today you would earn a total of  4,491  from holding Vanguard Russell 2000 or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Russell 2000  vs.  Fidelity Small Mid Factor

Vanguard Russell 2000

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Vanguard Russell showed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Small Mid

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Small Mid Factor are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Fidelity Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Russell and Fidelity Small

The main advantage of trading using opposite Vanguard Russell and Fidelity Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Russell 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 Russell 2000 and Fidelity Small Mid Factor 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.