Correlation Between Fidelity Freedom and Merck
Can any of the company-specific risk be diversified away by investing in both Fidelity Freedom and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity Freedom Index and Merck Company, you can compare the effects of market volatilities on Fidelity Freedom and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Freedom and Merck.
Diversification Opportunities for Fidelity Freedom and Merck
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Fidelity and Merck is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Freedom Index and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Index are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Fidelity Freedom i.e., Fidelity Freedom and Merck go up and down completely randomly.
Pair Corralation between Fidelity Freedom and Merck
Assuming the 90 days horizon Fidelity Freedom Index is expected to generate 0.55 times more return on investment than Merck. However, Fidelity Freedom Index is 1.81 times less risky than Merck. It trades about -0.11 of its potential returns per unit of risk. Merck Company is currently generating about -0.31 per unit of risk. If you would invest 1,882 in Fidelity Freedom Index on January 13, 2025 and sell it today you would lose (62.00) from holding Fidelity Freedom Index or give up 3.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fidelity Freedom Index vs. Merck Company
Performance |
| Timeline |
| Fidelity Freedom Index |
| Merck Company |
Fidelity Freedom and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fidelity Freedom and Merck
The main advantage of trading using opposite Fidelity Freedom and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Freedom position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Fidelity Freedom vs. Fidelity Freedom Index | Fidelity Freedom vs. Fidelity Freedom Index | Fidelity Freedom vs. Fidelity Freedom Index | Fidelity Freedom vs. Fidelity Freedom Index |
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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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