Correlation Between Dimensional Small and Franklin LibertyQ

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

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

Diversification Opportunities for Dimensional Small and Franklin LibertyQ

0.93

Correlation Coefficient

Dimensional Small  Franklin LibertyQ

Almost no diversification

The 3 months correlation between Dimensional and Franklin is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Franklin LibertyQ Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin LibertyQ Small and Dimensional Small 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 Dimensional Small Cap are associated (or correlated) with Franklin LibertyQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin LibertyQ Small has no effect on the direction of Dimensional Small i.e., Dimensional Small and Franklin LibertyQ go up and down completely randomly.

Pair Corralation between Dimensional Small and Franklin LibertyQ

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 0.97 times more return on investment than Franklin LibertyQ. However, Dimensional Small Cap is 1.03 times less risky than Franklin LibertyQ. It trades about 0.06 of its potential returns per unit of risk. Franklin LibertyQ Small is currently generating about 0.05 per unit of risk. If you would invest  6,491  in Dimensional Small Cap on October 26, 2024 and sell it today you would earn a total of  278.00  from holding Dimensional Small Cap or generate 4.28% return on investment over 90 days.

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

Dimensional Small Cap  vs.  Franklin LibertyQ Small

Dimensional Small Cap

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Dimensional Small is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Franklin LibertyQ Small

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin LibertyQ Small are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Franklin LibertyQ is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dimensional Small and Franklin LibertyQ

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

The idea behind Dimensional Small Cap and Franklin LibertyQ Small 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 CEOs Directory module to screen CEOs from public companies around the world.