Correlation Between Fidelity Freedom and 3M

Can any of the company-specific risk be diversified away by investing in both Fidelity Freedom and 3M 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 3M 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 3M Company, you can compare the effects of market volatilities on Fidelity Freedom and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and 3M.

Diversification Opportunities for Fidelity Freedom and 3M

Very poor diversification

The 3 months correlation between Fidelity and 3M is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom Index and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and 3M go up and down completely randomly.

Pair Corralation between Fidelity Freedom and 3M

Assuming the 90 days horizon Fidelity Freedom Index is expected to generate 0.24 times more return on investment than 3M. However, Fidelity Freedom Index is 4.18 times less risky than 3M. It trades about -0.03 of its potential returns per unit of risk. 3M Company is currently generating about -0.05 per unit of risk. If you would invest  1,340  in Fidelity Freedom Index on September 2, 2023 and sell it today you would lose (89.00) from holding Fidelity Freedom Index or give up 6.64% of portfolio value over 90 days.

Fidelity Freedom Index  vs.  3M Company

Fidelity Freedom Index

Fidelity Performance

4 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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.

3M Company

3M Performance

0 of 100

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

Pair Trading with Fidelity Freedom and 3M

The main advantage of trading using opposite Fidelity Freedom and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Freedom position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.

The idea behind Fidelity Freedom Index and 3M Company 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.