Correlation Between Franklin Utilities and Baron Real

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

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

Diversification Opportunities for Franklin Utilities and Baron Real

0.69

Correlation Coefficient

Franklin Utilities  Baron Real

Poor diversification

The 3 months correlation between Franklin and Baron is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Utilities Fund and Baron Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Real Estate and Franklin Utilities 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 Utilities Fund are associated (or correlated) with Baron Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Real Estate has no effect on the direction of Franklin Utilities i.e., Franklin Utilities and Baron Real go up and down completely randomly.

Pair Corralation between Franklin Utilities and Baron Real

Assuming the 90 days horizon Franklin Utilities Fund is expected to under-perform the Baron Real. In addition to that, Franklin Utilities is 1.1 times more volatile than Baron Real Estate. It trades about -0.16 of its total potential returns per unit of risk. Baron Real Estate is currently generating about -0.02 per unit of volatility. If you would invest  1,771  in Baron Real Estate on November 29, 2024 and sell it today you would lose (29.00) from holding Baron Real Estate or give up 1.64% of portfolio value over 90 days.

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

Franklin Utilities Fund  vs.  Baron Real Estate

Franklin Utilities

Risk-Adjusted Performance

Very Weak

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

Baron Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baron Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Baron Real 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 Utilities and Baron Real

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

The idea behind Franklin Utilities Fund and Baron Real Estate 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..