Correlation Between Materials Portfolio and Franklin Natural

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

By analyzing existing cross correlation between Materials Portfolio Fidelity and Franklin Natural Resources, you can compare the effects of market volatilities on Materials Portfolio and Franklin Natural 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 Materials Portfolio with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Franklin Natural.

Diversification Opportunities for Materials Portfolio and Franklin Natural

0.45

Correlation Coefficient

Materials Portfolio  Franklin Natural

Very weak diversification

The 3 months correlation between Materials and Franklin is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Materials Portfolio 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 Materials Portfolio Fidelity are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Franklin Natural go up and down completely randomly.

Pair Corralation between Materials Portfolio and Franklin Natural

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Franklin Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Materials Portfolio Fidelity is 1.16 times less risky than Franklin Natural. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Franklin Natural Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,939  in Franklin Natural Resources on December 2, 2024 and sell it today you would earn a total of  6.00  from holding Franklin Natural Resources or generate 0.2% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Franklin Natural Resources

Materials Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin Natural Res

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Materials Portfolio and Franklin Natural

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

The idea behind Materials Portfolio Fidelity and Franklin Natural Resources 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.