Correlation Between Consumer Services and Franklin High

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

By analyzing existing cross correlation between Consumer Services Ultrasector and Franklin High Yield, you can compare the effects of market volatilities on Consumer Services and Franklin High 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 Consumer Services with a short position of Franklin High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Services and Franklin High.

Diversification Opportunities for Consumer Services and Franklin High

0.45

Correlation Coefficient

Consumer Services  Franklin High

Very weak diversification

The 3 months correlation between Consumer and Franklin is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Franklin High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin High Yield and Consumer Services 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 Consumer Services Ultrasector are associated (or correlated) with Franklin High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin High Yield has no effect on the direction of Consumer Services i.e., Consumer Services and Franklin High go up and down completely randomly.

Pair Corralation between Consumer Services and Franklin High

Assuming the 90 days horizon Consumer Services Ultrasector is expected to generate 5.48 times more return on investment than Franklin High. However, Consumer Services is 5.48 times more volatile than Franklin High Yield. It trades about 0.29 of its potential returns per unit of risk. Franklin High Yield is currently generating about 0.02 per unit of risk. If you would invest  5,976  in Consumer Services Ultrasector on September 14, 2024 and sell it today you would earn a total of  1,999  from holding Consumer Services Ultrasector or generate 33.45% return on investment over 90 days.

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

Consumer Services Ultrasector  vs.  Franklin High Yield

Consumer Services

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Services Ultrasector are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Consumer Services showed solid returns over the last few months and may actually be approaching a breakup point.

Franklin High Yield

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin High Yield are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Consumer Services and Franklin High

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

The idea behind Consumer Services Ultrasector and Franklin High Yield 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.