Correlation Between Fidelity Freedom and Merck

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

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

Diversification Opportunities for Fidelity Freedom and Merck

-0.73

Correlation Coefficient

Fidelity Freedom  Merck

Pay attention - limited upside

The 3 months correlation between Fidelity and Merck is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom Index and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Fidelity Freedom 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 Freedom Index are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Merck go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Merck

Assuming the 90 days horizon Fidelity Freedom Index is expected to under-perform the Merck. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity Freedom Index is 2.75 times less risky than Merck. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Merck Company is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  8,980  in Merck Company on December 29, 2024 and sell it today you would lose (57.00) from holding Merck Company or give up 0.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Fidelity Freedom Index  vs.  Merck Company

Fidelity Freedom Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Fidelity Freedom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Fidelity Freedom and Merck

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

The idea behind Fidelity Freedom Index and Merck Company 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.