Correlation Between Franklin High and Royce Opportunity

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

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

Diversification Opportunities for Franklin High and Royce Opportunity

0.42

Correlation Coefficient

Franklin High  Royce Opportunity

Very weak diversification

The 3 months correlation between Franklin and Royce is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Franklin High Income and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Franklin High 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 High Income are associated (or correlated) with Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Franklin High i.e., Franklin High and Royce Opportunity go up and down completely randomly.

Pair Corralation between Franklin High and Royce Opportunity

Assuming the 90 days horizon Franklin High is expected to generate 1.19 times less return on investment than Royce Opportunity. But when comparing it to its historical volatility, Franklin High Income is 3.94 times less risky than Royce Opportunity. It trades about 0.12 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,149  in Royce Opportunity Fund on September 17, 2024 and sell it today you would earn a total of  246.00  from holding Royce Opportunity Fund or generate 21.41% return on investment over 90 days.

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

Franklin High Income  vs.  Royce Opportunity Fund

Franklin High Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin High Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Franklin High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Opportunity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Royce Opportunity 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 High and Royce Opportunity

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

The idea behind Franklin High Income and Royce Opportunity Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.