Correlation Between Smallcap World and Franklin
Can any of the company-specific risk be diversified away by investing in both Smallcap World and Franklin 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 Smallcap World and Franklin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap World Fund and Franklin K2 Alternative, you can compare the effects of market volatilities on Smallcap World and Franklin 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 Smallcap World with a short position of Franklin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Franklin.
Diversification Opportunities for Smallcap World and Franklin
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Smallcap and Franklin is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Franklin K2 Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin K2 Alternative and Smallcap World 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 Smallcap World Fund are associated (or correlated) with Franklin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin K2 Alternative has no effect on the direction of Smallcap World i.e., Smallcap World and Franklin go up and down completely randomly.
Pair Corralation between Smallcap World and Franklin
Assuming the 90 days horizon Smallcap World Fund is expected to generate 0.35 times more return on investment than Franklin. However, Smallcap World Fund is 2.87 times less risky than Franklin. It trades about -0.37 of its potential returns per unit of risk. Franklin K2 Alternative is currently generating about -0.19 per unit of risk. If you would invest 7,267 in Smallcap World Fund on October 10, 2024 and sell it today you would lose (438.00) from holding Smallcap World Fund or give up 6.03% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Smallcap World Fund vs. Franklin K2 Alternative
Performance |
Timeline |
Smallcap World |
Franklin K2 Alternative |
Smallcap World and Franklin Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Smallcap World and Franklin
The main advantage of trading using opposite Smallcap World and Franklin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap World position performs unexpectedly, Franklin 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 will offset losses from the drop in Franklin's long position.Smallcap World vs. Baird Midcap Fund | Smallcap World vs. Rational Defensive Growth | Smallcap World vs. Small Pany Growth | Smallcap World vs. Needham Aggressive Growth |
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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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