Correlation Between Franklin Liberty and Invesco Senior

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

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

Diversification Opportunities for Franklin Liberty and Invesco Senior

0.86

Correlation Coefficient

Franklin Liberty  Invesco Senior

Very poor diversification

The 3 months correlation between Franklin and Invesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Senior and Invesco Senior Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Senior Loan and Franklin Liberty 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 Liberty Senior are associated (or correlated) with Invesco Senior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Senior Loan has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and Invesco Senior go up and down completely randomly.

Pair Corralation between Franklin Liberty and Invesco Senior

Given the investment horizon of 90 days Franklin Liberty Senior is expected to generate 1.17 times more return on investment than Invesco Senior. However, Franklin Liberty is 1.17 times more volatile than Invesco Senior Loan. It trades about 0.03 of its potential returns per unit of risk. Invesco Senior Loan is currently generating about 0.01 per unit of risk. If you would invest  2,400  in Franklin Liberty Senior on December 30, 2024 and sell it today you would earn a total of  6.00  from holding Franklin Liberty Senior or generate 0.25% return on investment over 90 days.

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

Franklin Liberty Senior  vs.  Invesco Senior Loan

Franklin Liberty Senior

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Senior are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Franklin Liberty is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Invesco Senior Loan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Senior Loan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Invesco Senior is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Franklin Liberty and Invesco Senior

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

The idea behind Franklin Liberty Senior and Invesco Senior Loan 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.