Correlation Between Chestnut Street and Franklin Small

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

By analyzing existing cross correlation between Chestnut Street Exchange and Franklin Small Cap, you can compare the effects of market volatilities on Chestnut Street and Franklin Small 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 Chestnut Street with a short position of Franklin Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chestnut Street and Franklin Small.

Diversification Opportunities for Chestnut Street and Franklin Small

0.87

Correlation Coefficient

Chestnut Street  Franklin Small

Very poor diversification

The 3 months correlation between Chestnut and Franklin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Chestnut Street Exchange and Franklin Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Cap and Chestnut Street 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 Chestnut Street Exchange are associated (or correlated) with Franklin Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Cap has no effect on the direction of Chestnut Street i.e., Chestnut Street and Franklin Small go up and down completely randomly.

Pair Corralation between Chestnut Street and Franklin Small

Assuming the 90 days horizon Chestnut Street Exchange is expected to generate 0.51 times more return on investment than Franklin Small. However, Chestnut Street Exchange is 1.96 times less risky than Franklin Small. It trades about 0.1 of its potential returns per unit of risk. Franklin Small Cap is currently generating about -0.01 per unit of risk. If you would invest  116,145  in Chestnut Street Exchange on September 15, 2024 and sell it today you would earn a total of  921.00  from holding Chestnut Street Exchange or generate 0.79% return on investment over 90 days.

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

Chestnut Street Exchange  vs.  Franklin Small Cap

Chestnut Street Exchange

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chestnut Street Exchange are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Chestnut Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chestnut Street and Franklin Small

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

The idea behind Chestnut Street Exchange and Franklin Small Cap 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.