Correlation Between Vanguard Small and Fidelity Advisor

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

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

Diversification Opportunities for Vanguard Small and Fidelity Advisor

0.88

Correlation Coefficient

Vanguard Small  Fidelity Advisor

Very poor diversification

The 3 months correlation between Vanguard and Fidelity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Fidelity Advisor Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Growth and Vanguard Small 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 Small Cap Index are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Growth has no effect on the direction of Vanguard Small i.e., Vanguard Small and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Vanguard Small and Fidelity Advisor

Assuming the 90 days horizon Vanguard Small is expected to generate 3.71 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.03 times less risky than Fidelity Advisor. It trades about 0.04 of its potential returns per unit of risk. Fidelity Advisor Growth is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  16,094  in Fidelity Advisor Growth on September 21, 2024 and sell it today you would earn a total of  1,429  from holding Fidelity Advisor Growth or generate 8.88% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Fidelity Advisor Growth

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

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

Fidelity Advisor Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fidelity Advisor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Small and Fidelity Advisor

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

The idea behind Vanguard Small Cap Index and Fidelity Advisor Growth 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.