Correlation Between Fidelity Freedom and First American

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

Diversification Opportunities for Fidelity Freedom and First American

-0.22

Correlation Coefficient

Fidelity Freedom  First American

Very good diversification

The 3 months correlation between Fidelity and First is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom 2010 and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and First American go up and down completely randomly.

Pair Corralation between Fidelity Freedom and First American

Assuming the 90 days horizon Fidelity Freedom 2010 is expected to generate 2.32 times more return on investment than First American. However, Fidelity Freedom is 2.32 times more volatile than First American Funds. It trades about 0.06 of its potential returns per unit of risk. First American Funds is currently generating about 0.13 per unit of risk. If you would invest  1,434  in Fidelity Freedom 2010 on September 4, 2024 and sell it today you would earn a total of  17.00  from holding Fidelity Freedom 2010 or generate 1.19% return on investment over 90 days.

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

Fidelity Freedom 2010  vs.  First American Funds

Fidelity Freedom 2010

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2010 are ranked lower than 5 (%) 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.

First American Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First American Funds are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First American 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 First American

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

The idea behind Fidelity Freedom 2010 and First American Funds 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.