Correlation Between Touchstone Large and Fidelity Freedom

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

By analyzing existing cross correlation between Touchstone Large Cap and Fidelity Freedom 2040, you can compare the effects of market volatilities on Touchstone Large 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 Touchstone Large with a short position of Fidelity Freedom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Touchstone Large and Fidelity Freedom.

Diversification Opportunities for Touchstone Large and Fidelity Freedom

0.51

Correlation Coefficient

Touchstone Large  Fidelity Freedom

Very weak diversification

The 3 months correlation between Touchstone and Fidelity is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Large Cap and Fidelity Freedom 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Freedom 2040 and Touchstone Large 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 Touchstone Large Cap 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 2040 has no effect on the direction of Touchstone Large i.e., Touchstone Large and Fidelity Freedom go up and down completely randomly.

Pair Corralation between Touchstone Large and Fidelity Freedom

Assuming the 90 days horizon Touchstone Large is expected to generate 1.18 times less return on investment than Fidelity Freedom. In addition to that, Touchstone Large is 1.23 times more volatile than Fidelity Freedom 2040. It trades about 0.05 of its total potential returns per unit of risk. Fidelity Freedom 2040 is currently generating about 0.07 per unit of volatility. If you would invest  1,188  in Fidelity Freedom 2040 on September 15, 2024 and sell it today you would earn a total of  31.00  from holding Fidelity Freedom 2040 or generate 2.61% return on investment over 90 days.

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

Touchstone Large Cap  vs.  Fidelity Freedom 2040

Touchstone Large Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Large Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Touchstone Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Freedom 2040

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2040 are ranked lower than 5 (%) 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.

Pair Trading with Touchstone Large and Fidelity Freedom

The main advantage of trading using opposite Touchstone Large and Fidelity Freedom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Touchstone Large 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 Touchstone Large Cap and Fidelity Freedom 2040 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.