Correlation Between FIDELITY SAI and B of A

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

By analyzing existing cross correlation between FIDELITY SAI LONG TERM and Bank Of America, you can compare the effects of market volatilities on FIDELITY SAI and B of A 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 FIDELITY SAI with a short position of B of A. Check out your portfolio center. Please also check ongoing floating volatility patterns of FIDELITY SAI and B of A.

Diversification Opportunities for FIDELITY SAI and B of A

Average diversification

The 3 months correlation between FIDELITY and BAC is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding FIDELITY SAI LONG-TERM and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America and FIDELITY SAI 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 FIDELITY SAI LONG TERM are associated (or correlated) with B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of FIDELITY SAI i.e., FIDELITY SAI and B of A go up and down completely randomly.

Pair Corralation between FIDELITY SAI and B of A

Assuming the 90 days horizon FIDELITY SAI LONG TERM is expected to under-perform the B of A. But the mutual fund apears to be less risky and, when comparing its historical volatility, FIDELITY SAI LONG TERM is 1.12 times less risky than B of A. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Bank Of America is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  2,838  in Bank Of America on June 25, 2023 and sell it today you would lose (74.00) from holding Bank Of America or give up 2.61% of portfolio value over 90 days.

FIDELITY SAI LONG-TERM  vs.  Bank Of America

FIDELITY SAI LONG-TERM

FIDELITY Performance

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Over the last 90 days FIDELITY SAI LONG TERM has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Bank Of America

BAC Performance

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Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, B of A is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FIDELITY SAI and B of A

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

The idea behind FIDELITY SAI LONG TERM and Bank Of America 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.

Check out your portfolio center. 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.