Correlation Between Franklin Emerging and Parametric Intl

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

By analyzing existing cross correlation between Franklin Emerging Market and Parametric Intl Equity, you can compare the effects of market volatilities on Franklin Emerging and Parametric Intl 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 Emerging with a short position of Parametric Intl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Emerging and Parametric Intl.

Diversification Opportunities for Franklin Emerging and Parametric Intl

-0.61

Correlation Coefficient

Franklin Emerging  Parametric Intl

Excellent diversification

The 3 months correlation between Franklin and Parametric is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Emerging Market and Parametric Intl Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Intl Equity and Franklin Emerging 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 Emerging Market are associated (or correlated) with Parametric Intl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Intl Equity has no effect on the direction of Franklin Emerging i.e., Franklin Emerging and Parametric Intl go up and down completely randomly.

Pair Corralation between Franklin Emerging and Parametric Intl

Assuming the 90 days horizon Franklin Emerging is expected to generate 2.02 times less return on investment than Parametric Intl. But when comparing it to its historical volatility, Franklin Emerging Market is 2.27 times less risky than Parametric Intl. It trades about 0.12 of its potential returns per unit of risk. Parametric Intl Equity is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,439  in Parametric Intl Equity on September 18, 2024 and sell it today you would earn a total of  15.00  from holding Parametric Intl Equity or generate 1.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Franklin Emerging Market  vs.  Parametric Intl Equity

Franklin Emerging Market

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Emerging Market are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Franklin Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Parametric Intl Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parametric Intl Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Parametric Intl 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 Emerging and Parametric Intl

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

The idea behind Franklin Emerging Market and Parametric Intl Equity 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.