Correlation Between Franklin Small and Tax-managed

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

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

Diversification Opportunities for Franklin Small and Tax-managed

0.89

Correlation Coefficient

Franklin Small  Tax-managed

Very poor diversification

The 3 months correlation between Franklin and Tax-managed is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Small Cap and Tax Managed Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Managed Mid and Franklin 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 Franklin Small Cap are associated (or correlated) with Tax-managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Managed Mid has no effect on the direction of Franklin Small i.e., Franklin Small and Tax-managed go up and down completely randomly.

Pair Corralation between Franklin Small and Tax-managed

Assuming the 90 days horizon Franklin Small Cap is expected to generate 1.0 times more return on investment than Tax-managed. However, Franklin Small Cap is 1.0 times less risky than Tax-managed. It trades about -0.17 of its potential returns per unit of risk. Tax Managed Mid Small is currently generating about -0.26 per unit of risk. If you would invest  1,681  in Franklin Small Cap on October 9, 2024 and sell it today you would lose (70.00) from holding Franklin Small Cap or give up 4.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Franklin Small Cap  vs.  Tax Managed Mid Small

Franklin Small Cap

Risk-Adjusted Performance

5 of 100

Modest

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

Tax Managed Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tax Managed Mid Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Small and Tax-managed

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

The idea behind Franklin Small Cap and Tax Managed Mid 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 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.