Correlation Between Ultra Short and Fidelity Limited

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

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

Diversification Opportunities for Ultra Short and Fidelity Limited

-0.47

Correlation Coefficient

Ultra Short  Fidelity Limited

Very good diversification

The 3 months correlation between Ultra and Fidelity is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Municipal and Fidelity Limited Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Limited Term and Ultra Short 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 Ultra Short Term Municipal are associated (or correlated) with Fidelity Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Limited Term has no effect on the direction of Ultra Short i.e., Ultra Short and Fidelity Limited go up and down completely randomly.

Pair Corralation between Ultra Short and Fidelity Limited

Assuming the 90 days horizon Ultra Short Term Municipal is expected to generate 1.03 times more return on investment than Fidelity Limited. However, Ultra Short is 1.03 times more volatile than Fidelity Limited Term. It trades about 0.11 of its potential returns per unit of risk. Fidelity Limited Term is currently generating about -0.18 per unit of risk. If you would invest  953.00  in Ultra Short Term Municipal on February 2, 2024 and sell it today you would earn a total of  3.00  from holding Ultra Short Term Municipal or generate 0.31% return on investment over 90 days.

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

Ultra Short Term Municipal  vs.  Fidelity Limited Term

Ultra Short Term

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Municipal are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Limited Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultra Short and Fidelity Limited

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

The idea behind Ultra Short Term Municipal and Fidelity Limited Term 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.