Correlation Between Franklin Emerging and Ultra Short

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

Diversification Opportunities for Franklin Emerging and Ultra Short

0.02

Correlation Coefficient

Franklin Emerging  Ultra Short

Significant diversification

The 3 months correlation between Franklin and Ultra is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Emerging Market and Ultra Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Term 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 Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Term has no effect on the direction of Franklin Emerging i.e., Franklin Emerging and Ultra Short go up and down completely randomly.

Pair Corralation between Franklin Emerging and Ultra Short

Assuming the 90 days horizon Franklin Emerging Market is expected to generate 3.25 times more return on investment than Ultra Short. However, Franklin Emerging is 3.25 times more volatile than Ultra Short Term Bond. It trades about 0.11 of its potential returns per unit of risk. Ultra Short Term Bond is currently generating about 0.21 per unit of risk. If you would invest  965.00  in Franklin Emerging Market on October 10, 2024 and sell it today you would earn a total of  196.00  from holding Franklin Emerging Market or generate 20.31% return on investment over 90 days.

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

Franklin Emerging Market  vs.  Ultra Short Term Bond

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.

Ultra Short Term

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short 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 Ultra Short

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

The idea behind Franklin Emerging Market and Ultra Short Term Bond 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.