Correlation Between Columbia Moderate and Franklin Equity

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

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

Diversification Opportunities for Columbia Moderate and Franklin Equity

0.78

Correlation Coefficient

Columbia Moderate  Franklin Equity

Poor diversification

The 3 months correlation between Columbia and Franklin is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Moderate Growth and Franklin Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Equity Income and Columbia Moderate 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 Columbia Moderate Growth are associated (or correlated) with Franklin Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Equity Income has no effect on the direction of Columbia Moderate i.e., Columbia Moderate and Franklin Equity go up and down completely randomly.

Pair Corralation between Columbia Moderate and Franklin Equity

Assuming the 90 days horizon Columbia Moderate Growth is expected to under-perform the Franklin Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Columbia Moderate Growth is 1.37 times less risky than Franklin Equity. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Franklin Equity Income is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,142  in Franklin Equity Income on December 22, 2024 and sell it today you would lose (14.00) from holding Franklin Equity Income or give up 0.45% of portfolio value over 90 days.

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

Columbia Moderate Growth  vs.  Franklin Equity Income

Columbia Moderate Growth

Risk-Adjusted Performance

Very Weak

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

Franklin Equity Income

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Columbia Moderate and Franklin Equity

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

The idea behind Columbia Moderate Growth and Franklin Equity Income 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.