Correlation Between Vanguard Index and Fidelity Total

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Can any of the company-specific risk be diversified away by investing in both Vanguard Index and Fidelity Total 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 Total 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 Total Market, you can compare the effects of market volatilities on Vanguard Index and Fidelity Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Index and Fidelity Total.

Diversification Opportunities for Vanguard Index and Fidelity Total

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 Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Total Market 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Total Market has no effect on the direction of Vanguard Index i.e., Vanguard Index and Fidelity Total go up and down completely randomly.

Pair Corralation between Vanguard Index and Fidelity Total

Assuming the 90 days horizon Vanguard Index is expected to generate 1.02 times less return on investment than Fidelity Total. But when comparing it to its historical volatility, Vanguard Index Trust is 1.0 times less risky than Fidelity Total. It trades about 0.03 of its potential returns per unit of risk. Fidelity Total Market is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,167  in Fidelity Total Market on April 8, 2022 and sell it today you would earn a total of  176.00  from holding Fidelity Total Market or generate 15.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Index Trust  vs.  Fidelity Total Market

 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 August 2022. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Price Channel

Fidelity Total Market 
Fidelity Performance
0 of 100
Over the last 90 days Fidelity Total Market 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 August 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 Total Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Vanguard Index and Fidelity Total

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

Vanguard Index Trust

Pair trading matchups for Vanguard Index

Energous Corp vs. Vanguard Index
SL Green vs. Vanguard Index
Embark Technology vs. Vanguard Index
Microsoft Corp vs. Vanguard Index
Trivago NV vs. Vanguard Index
Merck vs. Vanguard Index
Alibaba Group vs. Vanguard Index
GM vs. Vanguard Index
VISA INC vs. Vanguard Index
Invesco Mortgage vs. Vanguard Index
Ford 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 Total Market 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 Total Market

Pair trading matchups for Fidelity Total

Vmware vs. Fidelity Total
Bank of New York vs. Fidelity Total
Ford vs. Fidelity Total
Trivago NV vs. Fidelity Total
Invesco Mortgage vs. Fidelity Total
Walker Dunlop vs. Fidelity Total
ATT vs. Fidelity Total
Alibaba Group vs. Fidelity Total
Twitter vs. Fidelity Total
Eli Lilly vs. Fidelity Total
Merck vs. Fidelity Total
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 Total 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 Total'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 Total'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 Total Market.
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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