Correlation Between Franklin International and Virtus WMC

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

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

Diversification Opportunities for Franklin International and Virtus WMC

0.96

Correlation Coefficient

Franklin International  Virtus WMC

Almost no diversification

The 3 months correlation between Franklin and Virtus is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Franklin International Core and Virtus WMC International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus WMC International and Franklin International 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 Franklin International Core are associated (or correlated) with Virtus WMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus WMC International has no effect on the direction of Franklin International i.e., Franklin International and Virtus WMC go up and down completely randomly.

Pair Corralation between Franklin International and Virtus WMC

Given the investment horizon of 90 days Franklin International is expected to generate 1.58 times less return on investment than Virtus WMC. But when comparing it to its historical volatility, Franklin International Core is 1.05 times less risky than Virtus WMC. It trades about 0.18 of its potential returns per unit of risk. Virtus WMC International is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,648  in Virtus WMC International on October 24, 2024 and sell it today you would earn a total of  79.00  from holding Virtus WMC International or generate 2.98% return on investment over 90 days.

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

Franklin International Core  vs.  Virtus WMC International

Franklin International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin International Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Franklin International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Virtus WMC International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virtus WMC International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Virtus WMC is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Franklin International and Virtus WMC

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

The idea behind Franklin International Core and Virtus WMC International 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.