Correlation Between Fidelity Freedom and Fidelity Japan

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

By analyzing existing cross correlation between Fidelity Freedom 2015 and Fidelity Japan Smaller, you can compare the effects of market volatilities on Fidelity Freedom and Fidelity Japan 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 Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and Fidelity Japan.

Diversification Opportunities for Fidelity Freedom and Fidelity Japan

0.76

Correlation Coefficient

Fidelity Freedom  Fidelity Japan

Poor diversification

The 3 months correlation between Fidelity and Fidelity is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom 2015 and Fidelity Japan Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Japan Smaller 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 2015 are associated (or correlated) with Fidelity Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Japan Smaller has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Fidelity Japan go up and down completely randomly.

Pair Corralation between Fidelity Freedom and Fidelity Japan

Assuming the 90 days horizon Fidelity Freedom is expected to generate 1.32 times less return on investment than Fidelity Japan. But when comparing it to its historical volatility, Fidelity Freedom 2015 is 3.45 times less risky than Fidelity Japan. It trades about 0.08 of its potential returns per unit of risk. Fidelity Japan Smaller is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,665  in Fidelity Japan Smaller on September 4, 2024 and sell it today you would earn a total of  31.00  from holding Fidelity Japan Smaller or generate 1.86% return on investment over 90 days.

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

Fidelity Freedom 2015  vs.  Fidelity Japan Smaller

Fidelity Freedom 2015

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2015 are ranked lower than 6 (%) 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.

Fidelity Japan Smaller

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Japan Smaller are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fidelity Japan 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 Fidelity Japan

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

The idea behind Fidelity Freedom 2015 and Fidelity Japan Smaller 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.