Correlation Between Vanguard Index and Fidelity 500

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Vanguard Index and Fidelity 500 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 Index and Fidelity 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Index Trust and Fidelity 500 Index, you can compare the effects of market volatilities on Vanguard Index and Fidelity 500 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 Index with a short position of Fidelity 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Index and Fidelity 500.

Diversification Opportunities for Vanguard Index and Fidelity 500

1.0
  Correlation Coefficient

No risk reduction

The 3 months correlation between Vanguard and Fidelity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Trust and Fidelity 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity 500 Index and Vanguard Index 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 Index Trust are associated (or correlated) with Fidelity 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity 500 Index has no effect on the direction of Vanguard Index i.e., Vanguard Index and Fidelity 500 go up and down completely randomly.

Pair Corralation between Vanguard Index and Fidelity 500

Assuming the 90 days horizon Vanguard Index Trust is expected to under-perform the Fidelity 500. In addition to that, Vanguard Index is 1.06 times more volatile than Fidelity 500 Index. It trades about -0.14 of its total potential returns per unit of risk. Fidelity 500 Index is currently generating about -0.15 per unit of volatility. If you would invest  14,469  in Fidelity 500 Index on March 28, 2022 and sell it today you would lose (841.00)  from holding Fidelity 500 Index or give up 5.81% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Index Trust  vs.  Fidelity 500 Index

 Performance (%) 
      Timeline 
Vanguard Index Trust 
Vanguard Performance
0 of 100
Over the last 90 days Vanguard Index Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Price Channel

Fidelity 500 Index 
Fidelity Performance
0 of 100
Over the last 90 days Fidelity 500 Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long term up-swing for the fund investors.

Fidelity Price Channel

Vanguard Index and Fidelity 500 Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Vanguard Index and Fidelity 500

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

Vanguard Index Trust

Pair trading matchups for Vanguard Index

Conagra Brands vs. Vanguard Index
Northrop Grumman vs. Vanguard Index
Verizon Communications vs. Vanguard Index
Cincinnati Financial vs. Vanguard Index
Macroaxis vs. Vanguard Index
Merck vs. Vanguard Index
Chevron Corp vs. Vanguard Index
Teucrium Corn vs. Vanguard Index
Home Depot vs. Vanguard Index
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Vanguard Index as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Vanguard Index's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Vanguard Index's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Vanguard Index Trust.
The idea behind Vanguard Index Trust and Fidelity 500 Index 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.

Fidelity 500 Index

Pair trading matchups for Fidelity 500

Cincinnati Financial vs. Fidelity 500
Merck vs. Fidelity 500
Conagra Brands vs. Fidelity 500
Northrop Grumman vs. Fidelity 500
Verizon Communications vs. Fidelity 500
Home Depot vs. Fidelity 500
Micron Technology vs. Fidelity 500
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Fidelity 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Fidelity 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Fidelity 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Fidelity 500 Index.
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

Other Complementary Tools

Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Money Flow Index
Determine momentum by analyzing Money Flow Index and other technical indicators
Go
Portfolio Backtesting
Avoid under-diversification and over-optimization by backtesting your portfolios
Go
Portfolio Suggestion
Get suggestions outside of your existing asset allocation including your own model portfolios
Go
Portfolio Optimization
Compute new portfolio that will generate highest expected return given your specified tolerance for risk
Go
Piotroski F Score
Get Piotroski F Score based on binary analysis strategy of nine different fundamentals
Go