Correlation Between Fidelity Freedom and Fidelity Disciplined

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

Diversification Opportunities for Fidelity Freedom and Fidelity Disciplined

0.64

Correlation Coefficient

Fidelity Freedom  Fidelity Disciplined

Poor diversification

The 3 months correlation between Fidelity and Fidelity is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom Index and Fidelity Disciplined Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Disciplined 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 Fidelity Disciplined. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Disciplined has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Fidelity Disciplined go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Fidelity Disciplined

Assuming the 90 days horizon Fidelity Freedom Index is expected to generate 0.43 times more return on investment than Fidelity Disciplined. However, Fidelity Freedom Index is 2.33 times less risky than Fidelity Disciplined. It trades about -0.24 of its potential returns per unit of risk. Fidelity Disciplined Equity is currently generating about -0.21 per unit of risk. If you would invest  2,728  in Fidelity Freedom Index on October 11, 2024 and sell it today you would lose (123.00) from holding Fidelity Freedom Index or give up 4.51% of portfolio value over 90 days.

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

Fidelity Freedom Index  vs.  Fidelity Disciplined Equity

Fidelity Freedom Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Freedom Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Freedom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Disciplined

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Disciplined Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Fidelity Disciplined is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fidelity Freedom and Fidelity Disciplined

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

The idea behind Fidelity Freedom Index and Fidelity Disciplined Equity 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.