Correlation Between Ab New and Franklin Natural

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

By analyzing existing cross correlation between Ab New York and Franklin Natural Resources, you can compare the effects of market volatilities on Ab New and Franklin Natural 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 Ab New with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab New and Franklin Natural.

Diversification Opportunities for Ab New and Franklin Natural

0.6

Correlation Coefficient

Ab New  Franklin Natural

Poor diversification

The 3 months correlation between ALNVX and Franklin is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ab New York and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Ab New 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 Ab New York are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Ab New i.e., Ab New and Franklin Natural go up and down completely randomly.

Pair Corralation between Ab New and Franklin Natural

Assuming the 90 days horizon Ab New York is expected to generate 0.28 times more return on investment than Franklin Natural. However, Ab New York is 3.6 times less risky than Franklin Natural. It trades about -0.05 of its potential returns per unit of risk. Franklin Natural Resources is currently generating about -0.13 per unit of risk. If you would invest  936.00  in Ab New York on October 12, 2024 and sell it today you would lose (7.00) from holding Ab New York or give up 0.75% of portfolio value over 90 days.

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

Ab New York  vs.  Franklin Natural Resources

Ab New York

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab New York has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab New is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ab New and Franklin Natural

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

The idea behind Ab New York and Franklin Natural Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.