Correlation Between Fidelity Freedom and Trowe Price

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

By analyzing existing cross correlation between Fidelity Freedom 2020 and Trowe Price Retirement, you can compare the effects of market volatilities on Fidelity Freedom and Trowe Price 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 Trowe Price. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and Trowe Price.

Diversification Opportunities for Fidelity Freedom and Trowe Price

0.85

Correlation Coefficient

Fidelity Freedom  Trowe Price

Very poor diversification

The 3 months correlation between Fidelity and Trowe is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom 2020 and Trowe Price Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trowe Price Retirement 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 2020 are associated (or correlated) with Trowe Price. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trowe Price Retirement has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Trowe Price go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Trowe Price

Assuming the 90 days horizon Fidelity Freedom 2020 is expected to under-perform the Trowe Price. In addition to that, Fidelity Freedom is 1.04 times more volatile than Trowe Price Retirement. It trades about -0.36 of its total potential returns per unit of risk. Trowe Price Retirement is currently generating about -0.37 per unit of volatility. If you would invest  1,935  in Trowe Price Retirement on October 7, 2024 and sell it today you would lose (118.00) from holding Trowe Price Retirement or give up 6.1% of portfolio value over 90 days.

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

Fidelity Freedom 2020  vs.  Trowe Price Retirement

Fidelity Freedom 2020

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Freedom 2020 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.

Trowe Price Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trowe Price Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Trowe Price 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 Trowe Price

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

The idea behind Fidelity Freedom 2020 and Trowe Price Retirement 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.