Correlation Between IShares Fallen and Franklin Liberty

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

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

Diversification Opportunities for IShares Fallen and Franklin Liberty

0.76

Correlation Coefficient

IShares Fallen  Franklin Liberty

Poor diversification

The 3 months correlation between IShares and Franklin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fallen Angels and Franklin Liberty High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty High and IShares Fallen 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 iShares Fallen Angels are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty High has no effect on the direction of IShares Fallen i.e., IShares Fallen and Franklin Liberty go up and down completely randomly.

Pair Corralation between IShares Fallen and Franklin Liberty

Given the investment horizon of 90 days iShares Fallen Angels is expected to generate 1.06 times more return on investment than Franklin Liberty. However, IShares Fallen is 1.06 times more volatile than Franklin Liberty High. It trades about 0.08 of its potential returns per unit of risk. Franklin Liberty High is currently generating about 0.06 per unit of risk. If you would invest  2,644  in iShares Fallen Angels on December 30, 2024 and sell it today you would earn a total of  34.00  from holding iShares Fallen Angels or generate 1.29% return on investment over 90 days.

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

iShares Fallen Angels  vs.  Franklin Liberty High

iShares Fallen Angels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Fallen is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Franklin Liberty High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Fallen and Franklin Liberty

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

The idea behind iShares Fallen Angels and Franklin Liberty High 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.