Correlation Between Fidelity Freedom and Fidelity Salem

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

By analyzing existing cross correlation between Fidelity Freedom 2040 and Fidelity Salem Street, you can compare the effects of market volatilities on Fidelity Freedom and Fidelity Salem 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 Salem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and Fidelity Salem.

Diversification Opportunities for Fidelity Freedom and Fidelity Salem

0.14

Correlation Coefficient

Fidelity Freedom  Fidelity Salem

Average diversification

The 3 months correlation between Fidelity and Fidelity is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom 2040 and Fidelity Salem Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Salem Street 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 2040 are associated (or correlated) with Fidelity Salem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Salem Street has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Fidelity Salem go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Fidelity Salem

Assuming the 90 days horizon Fidelity Freedom 2040 is expected to under-perform the Fidelity Salem. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fidelity Freedom 2040 is 1.11 times less risky than Fidelity Salem. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Fidelity Salem Street is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,245  in Fidelity Salem Street on September 19, 2024 and sell it today you would earn a total of  23.00  from holding Fidelity Salem Street or generate 1.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Fidelity Freedom 2040  vs.  Fidelity Salem Street

Fidelity Freedom 2040

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Freedom 2040 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 Salem Street

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Salem Street has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Fidelity Freedom and Fidelity Salem

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

The idea behind Fidelity Freedom 2040 and Fidelity Salem Street 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.