Correlation Between Franklin High and Vanguard Developed

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

By analyzing existing cross correlation between Franklin High Yield and Vanguard Developed Markets, you can compare the effects of market volatilities on Franklin High and Vanguard Developed 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 Vanguard Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin High and Vanguard Developed.

Diversification Opportunities for Franklin High and Vanguard Developed

0.57

Correlation Coefficient

Franklin High  Vanguard Developed

Very weak diversification

The 3 months correlation between Franklin and Vanguard is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Franklin High Yield and Vanguard Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Developed 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 Yield are associated (or correlated) with Vanguard Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Developed has no effect on the direction of Franklin High i.e., Franklin High and Vanguard Developed go up and down completely randomly.

Pair Corralation between Franklin High and Vanguard Developed

Assuming the 90 days horizon Franklin High Yield is expected to under-perform the Vanguard Developed. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin High Yield is 3.27 times less risky than Vanguard Developed. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Vanguard Developed Markets is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,190  in Vanguard Developed Markets on December 31, 2024 and sell it today you would earn a total of  87.00  from holding Vanguard Developed Markets or generate 7.31% return on investment over 90 days.

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

Franklin High Yield  vs.  Vanguard Developed Markets

Franklin High Yield

Risk-Adjusted Performance

Very Weak

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

Vanguard Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Developed Markets are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Developed may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Franklin High and Vanguard Developed

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

The idea behind Franklin High Yield and Vanguard Developed Markets 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.