Correlation Between Tax Managed and Fidelity Freedom

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

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

Diversification Opportunities for Tax Managed and Fidelity Freedom

0.4

Correlation Coefficient

Tax Managed  Fidelity Freedom

Very weak diversification

The 3 months correlation between Tax and Fidelity is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed International Equi and Fidelity Freedom Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Freedom Index and Tax Managed 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 Tax Managed International Equity are associated (or correlated) with Fidelity Freedom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Freedom Index has no effect on the direction of Tax Managed i.e., Tax Managed and Fidelity Freedom go up and down completely randomly.

Pair Corralation between Tax Managed and Fidelity Freedom

Assuming the 90 days horizon Tax Managed International Equity is expected to under-perform the Fidelity Freedom. In addition to that, Tax Managed is 1.04 times more volatile than Fidelity Freedom Index. It trades about -0.3 of its total potential returns per unit of risk. Fidelity Freedom Index is currently generating about -0.23 per unit of volatility. If you would invest  2,747  in Fidelity Freedom Index on October 8, 2024 and sell it today you would lose (117.00) from holding Fidelity Freedom Index or give up 4.26% of portfolio value over 90 days.

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

Tax Managed International Equi  vs.  Fidelity Freedom Index

Tax Managed Internat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tax Managed International Equity 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.

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.

Pair Trading with Tax Managed and Fidelity Freedom

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

The idea behind Tax Managed International Equity and Fidelity Freedom Index 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.