Correlation Between Franklin Income and Templeton Developing

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

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

Diversification Opportunities for Franklin Income and Templeton Developing

0.74

Correlation Coefficient

Franklin Income  Templeton Developing

Poor diversification

The 3 months correlation between Franklin and Templeton is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Income Fund and Templeton Developing Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Developing and Franklin Income 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 Income Fund are associated (or correlated) with Templeton Developing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Developing has no effect on the direction of Franklin Income i.e., Franklin Income and Templeton Developing go up and down completely randomly.

Pair Corralation between Franklin Income and Templeton Developing

Assuming the 90 days horizon Franklin Income is expected to generate 1.52 times less return on investment than Templeton Developing. But when comparing it to its historical volatility, Franklin Income Fund is 2.87 times less risky than Templeton Developing. It trades about 0.09 of its potential returns per unit of risk. Templeton Developing Markets is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,672  in Templeton Developing Markets on October 14, 2024 and sell it today you would earn a total of  184.00  from holding Templeton Developing Markets or generate 11.0% return on investment over 90 days.

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

Franklin Income Fund  vs.  Templeton Developing Markets

Franklin Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Templeton Developing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Templeton Developing Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Franklin Income and Templeton Developing

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

The idea behind Franklin Income Fund and Templeton Developing 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.