Correlation Between Equity Growth and Franklin Growth

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

By analyzing existing cross correlation between Equity Growth Fund and Franklin Growth Opportunities, you can compare the effects of market volatilities on Equity Growth and Franklin Growth 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 Equity Growth with a short position of Franklin Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Franklin Growth.

Diversification Opportunities for Equity Growth and Franklin Growth

0.98

Correlation Coefficient

Equity Growth  Franklin Growth

Almost no diversification

The 3 months correlation between Equity and Franklin is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Franklin Growth Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Growth Oppo and Equity Growth 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 Equity Growth Fund are associated (or correlated) with Franklin Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Growth Oppo has no effect on the direction of Equity Growth i.e., Equity Growth and Franklin Growth go up and down completely randomly.

Pair Corralation between Equity Growth and Franklin Growth

Assuming the 90 days horizon Equity Growth Fund is expected to generate 0.7 times more return on investment than Franklin Growth. However, Equity Growth Fund is 1.43 times less risky than Franklin Growth. It trades about -0.11 of its potential returns per unit of risk. Franklin Growth Opportunities is currently generating about -0.1 per unit of risk. If you would invest  3,421  in Equity Growth Fund on December 22, 2024 and sell it today you would lose (225.00) from holding Equity Growth Fund or give up 6.58% of portfolio value over 90 days.

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

Equity Growth Fund  vs.  Franklin Growth Opportunities

Equity Growth

Risk-Adjusted Performance

Very Weak

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

Franklin Growth Oppo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Growth Opportunities 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 Equity Growth and Franklin Growth

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

The idea behind Equity Growth Fund and Franklin Growth Opportunities 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.