Correlation Between National Tax and Franklin Moderate

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

By analyzing existing cross correlation between The National Tax Free and Franklin Moderate Allocation, you can compare the effects of market volatilities on National Tax and Franklin Moderate 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 National Tax with a short position of Franklin Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Franklin Moderate.

Diversification Opportunities for National Tax and Franklin Moderate

0.46

Correlation Coefficient

National Tax  Franklin Moderate

Very weak diversification

The 3 months correlation between National and Franklin is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Franklin Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Moderate and National Tax 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 The National Tax Free are associated (or correlated) with Franklin Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Moderate has no effect on the direction of National Tax i.e., National Tax and Franklin Moderate go up and down completely randomly.

Pair Corralation between National Tax and Franklin Moderate

Assuming the 90 days horizon National Tax is expected to generate 52.9 times less return on investment than Franklin Moderate. But when comparing it to its historical volatility, The National Tax Free is 2.95 times less risky than Franklin Moderate. It trades about 0.01 of its potential returns per unit of risk. Franklin Moderate Allocation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,409  in Franklin Moderate Allocation on September 25, 2024 and sell it today you would earn a total of  192.00  from holding Franklin Moderate Allocation or generate 13.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

The National Tax Free  vs.  Franklin Moderate Allocation

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Moderate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with National Tax and Franklin Moderate

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

The idea behind The National Tax Free and Franklin Moderate Allocation 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.