Correlation Between Visa and Fidelity Freedom

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

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

Diversification Opportunities for Visa and Fidelity Freedom

0.24

Correlation Coefficient

Visa  Fidelity Freedom

Modest diversification

The 3 months correlation between Visa and Fidelity is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and Fidelity Freedom go up and down completely randomly.

Pair Corralation between Visa and Fidelity Freedom

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.13 times more return on investment than Fidelity Freedom. However, Visa is 2.13 times more volatile than Fidelity Freedom 2040. It trades about 0.16 of its potential returns per unit of risk. Fidelity Freedom 2040 is currently generating about 0.1 per unit of risk. If you would invest  27,801  in Visa Class A on August 31, 2024 and sell it today you would earn a total of  3,669  from holding Visa Class A or generate 13.2% return on investment over 90 days.

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

Visa Class A  vs.  Fidelity Freedom 2040

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Freedom 2040

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Freedom 2040 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental 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 Visa and Fidelity Freedom

The main advantage of trading using opposite Visa and Fidelity Freedom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.