Correlation Between Fidelity 500 and Plumb Balanced

Can any of the company-specific risk be diversified away by investing in both Fidelity 500 and Plumb Balanced 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 500 and Plumb Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fidelity 500 Index and Plumb Balanced, you can compare the effects of market volatilities on Fidelity 500 and Plumb Balanced 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 500 with a short position of Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity 500 and Plumb Balanced.

Diversification Opportunities for Fidelity 500 and Plumb Balanced

0.99

Correlation Coefficient

Fidelity 500  Plumb Balanced

No risk reduction

The 3 months correlation between Fidelity and Plumb is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity 500 Index and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Fidelity 500 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 500 Index are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Fidelity 500 i.e., Fidelity 500 and Plumb Balanced go up and down completely randomly.

Pair Corralation between Fidelity 500 and Plumb Balanced

Assuming the 90 days horizon Fidelity 500 Index is expected to generate 1.29 times more return on investment than Plumb Balanced. However, Fidelity 500 is 1.29 times more volatile than Plumb Balanced. It trades about -0.11 of its potential returns per unit of risk. Plumb Balanced is currently generating about -0.14 per unit of risk. If you would invest  17,868  in Fidelity 500 Index on January 17, 2024 and sell it today you would lose (288.00) from holding Fidelity 500 Index or give up 1.61% of portfolio value over 90 days.

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

Fidelity 500 Index  vs.  Plumb Balanced

Fidelity 500 Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity 500 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, Fidelity 500 may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Plumb Balanced

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Plumb Balanced are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Plumb Balanced may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Fidelity 500 and Plumb Balanced

The main advantage of trading using opposite Fidelity 500 and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity 500 position performs unexpectedly, Plumb Balanced 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 Plumb Balanced will offset losses from the drop in Plumb Balanced's long position.

The idea behind Fidelity 500 Index and Plumb Balanced 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.