Correlation Between Fidelity Freedom and American Funds

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Can any of the company-specific risk be diversified away by investing in both Fidelity Freedom and American Funds 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 American Funds 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 American Funds 2010, you can compare the effects of market volatilities on Fidelity Freedom and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and American Funds.

Diversification Opportunities for Fidelity Freedom and American Funds

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Fidelity and AMERICAN is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding FIDELITY FREEDOM 2010 and AMERICAN FUNDS 2010 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2010 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2010 has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and American Funds go up and down completely randomly.

Pair Corralation between Fidelity Freedom and American Funds

Assuming the 90 days horizon Fidelity Freedom 2010 is expected to generate 0.88 times more return on investment than American Funds. However, Fidelity Freedom 2010 is 1.14 times less risky than American Funds. It trades about 0.02 of its potential returns per unit of risk. American Funds 2010 is currently generating about 0.0 per unit of risk. If you would invest  1,350  in Fidelity Freedom 2010 on December 1, 2023 and sell it today you would earn a total of  8.00  from holding Fidelity Freedom 2010 or generate 0.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

FIDELITY FREEDOM 2010  vs.  AMERICAN FUNDS 2010

 Performance 
       Timeline  
Fidelity Freedom 2010 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2010 are ranked lower than 1 (%) 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.
American Funds 2010 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Weak
Over the last 90 days American Funds 2010 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Freedom and American Funds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fidelity Freedom and American Funds

The main advantage of trading using opposite Fidelity Freedom and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Freedom position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.
The idea behind Fidelity Freedom 2010 and American Funds 2010 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.
Check out your portfolio center.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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