Correlation Between Franklin Total and Franklin Equity

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

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

Diversification Opportunities for Franklin Total and Franklin Equity

-0.72

Correlation Coefficient

Franklin Total  Franklin Equity

Pay attention - limited upside

The 3 months correlation between Franklin and Franklin is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Total Return and Franklin Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Equity Income and Franklin Total 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 Total Return are associated (or correlated) with Franklin Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Equity Income has no effect on the direction of Franklin Total i.e., Franklin Total and Franklin Equity go up and down completely randomly.

Pair Corralation between Franklin Total and Franklin Equity

Assuming the 90 days horizon Franklin Total Return is expected to under-perform the Franklin Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Total Return is 2.0 times less risky than Franklin Equity. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Franklin Equity Income is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,338  in Franklin Equity Income on September 3, 2024 and sell it today you would earn a total of  263.00  from holding Franklin Equity Income or generate 7.88% return on investment over 90 days.

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

Franklin Total Return  vs.  Franklin Equity Income

Franklin Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Equity Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Equity Income are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Franklin Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Total and Franklin Equity

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

The idea behind Franklin Total Return and Franklin Equity Income 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.