Correlation Between Franklin Utilities and Utilities Fund

Can any of the company-specific risk be diversified away by investing in both Franklin Utilities and Utilities Fund 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 Utilities Fund 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 Utilities Fund Investor, you can compare the effects of market volatilities on Franklin Utilities and Utilities Fund 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 Utilities Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Utilities and Utilities Fund.

Diversification Opportunities for Franklin Utilities and Utilities Fund

0.88

Correlation Coefficient

Franklin Utilities  Utilities Fund

Very poor diversification

The 3 months correlation between Franklin and Utilities is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Utilities Fund and Utilities Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Investor 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Investor has no effect on the direction of Franklin Utilities i.e., Franklin Utilities and Utilities Fund go up and down completely randomly.

Pair Corralation between Franklin Utilities and Utilities Fund

Assuming the 90 days horizon Franklin Utilities Fund is expected to under-perform the Utilities Fund. In addition to that, Franklin Utilities is 1.21 times more volatile than Utilities Fund Investor. It trades about -0.07 of its total potential returns per unit of risk. Utilities Fund Investor is currently generating about -0.01 per unit of volatility. If you would invest  5,937  in Utilities Fund Investor on October 24, 2024 and sell it today you would lose (46.00) from holding Utilities Fund Investor or give up 0.77% of portfolio value over 90 days.

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

Franklin Utilities Fund  vs.  Utilities Fund Investor

Franklin Utilities

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Franklin Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Utilities Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Franklin Utilities Fund and Utilities Fund Investor 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.