Correlation Between Franklin Emerging and Aberdeen Japan

Can any of the company-specific risk be diversified away by investing in both Franklin Emerging and Aberdeen Japan 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 Aberdeen Japan 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 Aberdeen Japan Equity, you can compare the effects of market volatilities on Franklin Emerging and Aberdeen Japan 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 Aberdeen Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Emerging and Aberdeen Japan.

Diversification Opportunities for Franklin Emerging and Aberdeen Japan

0.23

Correlation Coefficient

Franklin Emerging  Aberdeen Japan

Modest diversification

The 3 months correlation between Franklin and Aberdeen is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Emerging Market and Aberdeen Japan Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Japan 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 Aberdeen Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Japan Equity has no effect on the direction of Franklin Emerging i.e., Franklin Emerging and Aberdeen Japan go up and down completely randomly.

Pair Corralation between Franklin Emerging and Aberdeen Japan

Assuming the 90 days horizon Franklin Emerging Market is expected to under-perform the Aberdeen Japan. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Emerging Market is 1.28 times less risky than Aberdeen Japan. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Aberdeen Japan Equity is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  586.00  in Aberdeen Japan Equity on October 10, 2024 and sell it today you would lose (7.00) from holding Aberdeen Japan Equity or give up 1.19% of portfolio value over 90 days.

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

Franklin Emerging Market  vs.  Aberdeen Japan Equity

Franklin Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Emerging Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Franklin Emerging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Aberdeen Japan Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aberdeen Japan Equity has generated negative risk-adjusted returns adding no value to fund investors. Even with relatively invariable technical and fundamental indicators, Aberdeen Japan is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Franklin Emerging and Aberdeen Japan

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

The idea behind Franklin Emerging Market and Aberdeen Japan 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .