Can any of the company-specific risk be diversified away by investing in both Us Treasury and Fidelity Sai 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 Us Treasury and Fidelity Sai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Treasury Long Term and Fidelity Sai Long Term, you can compare the effects of market volatilities on Us Treasury and Fidelity Sai 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 Us Treasury with a short position of Fidelity Sai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Treasury and Fidelity Sai.
Diversification Opportunities for Us Treasury and Fidelity Sai
The 3 months correlation between PRUUX and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding US TREASURY LONG-TERM and FIDELITY SAI LONG-TERM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Sai Long-term and Us Treasury 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 Us Treasury Long Term are associated (or correlated) with Fidelity Sai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Sai Long-term has no effect on the direction of Us Treasury i.e., Us Treasury and Fidelity Sai go up and down completely randomly.
Pair Corralation between Us Treasury and Fidelity Sai
Assuming the 90 days horizon Us Treasury is expected to generate 1.12 times less return on investment than Fidelity Sai. But when comparing it to its historical volatility, Us Treasury Long Term is 1.07 times less risky than Fidelity Sai. It trades about 0.26 of its potential returns per unit of risk. Fidelity Sai Long Term is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 650.00 in Fidelity Sai Long Term on September 2, 2023 and sell it today you would earn a total of 47.00 from holding Fidelity Sai Long Term or generate 7.23% return on investment over 90 days.
Over the last 90 days Us Treasury Long Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Us Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Fidelity Sai Long Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Sai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite Us Treasury and Fidelity Sai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Treasury position performs unexpectedly, Fidelity Sai 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 Sai will offset losses from the drop in Fidelity Sai's long position.
The idea behind Us Treasury Long Term and Fidelity Sai Long 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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