Correlation Between Fidelity Freedom and Vanguard Institutional

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

By analyzing existing cross correlation between Fidelity Freedom 2010 and Vanguard Institutional Short Term, you can compare the effects of market volatilities on Fidelity Freedom and Vanguard Institutional 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 Vanguard Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and Vanguard Institutional.

Diversification Opportunities for Fidelity Freedom and Vanguard Institutional

0.82

Correlation Coefficient

Fidelity Freedom  Vanguard Institutional

Very poor diversification

The 3 months correlation between Fidelity and Vanguard is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom 2010 and Vanguard Institutional Short T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Institutional 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 2010 are associated (or correlated) with Vanguard Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Institutional has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Vanguard Institutional go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Vanguard Institutional

Assuming the 90 days horizon Fidelity Freedom 2010 is expected to generate 3.98 times more return on investment than Vanguard Institutional. However, Fidelity Freedom is 3.98 times more volatile than Vanguard Institutional Short Term. It trades about 0.1 of its potential returns per unit of risk. Vanguard Institutional Short Term is currently generating about 0.33 per unit of risk. If you would invest  1,393  in Fidelity Freedom 2010 on December 30, 2024 and sell it today you would earn a total of  27.00  from holding Fidelity Freedom 2010 or generate 1.94% return on investment over 90 days.

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

Fidelity Freedom 2010  vs.  Vanguard Institutional Short T

Fidelity Freedom 2010

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2010 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Fidelity Freedom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Institutional

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Institutional Short Term are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Institutional 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 Vanguard Institutional

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

The idea behind Fidelity Freedom 2010 and Vanguard Institutional Short 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.