Correlation Between Franklin Liberty and Principal Exchange

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

By analyzing existing cross correlation between Franklin Liberty Investment and Principal Exchange Traded Funds, you can compare the effects of market volatilities on Franklin Liberty and Principal Exchange 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 Principal Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and Principal Exchange.

Diversification Opportunities for Franklin Liberty and Principal Exchange

0.93

Correlation Coefficient

Franklin Liberty  Principal Exchange

Almost no diversification

The 3 months correlation between Franklin and Principal is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Investment and Principal Exchange Traded Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Exchange 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 Investment are associated (or correlated) with Principal Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Exchange has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and Principal Exchange go up and down completely randomly.

Pair Corralation between Franklin Liberty and Principal Exchange

Given the investment horizon of 90 days Franklin Liberty is expected to generate 1.17 times less return on investment than Principal Exchange. But when comparing it to its historical volatility, Franklin Liberty Investment is 1.07 times less risky than Principal Exchange. It trades about 0.21 of its potential returns per unit of risk. Principal Exchange Traded Funds is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,012  in Principal Exchange Traded Funds on December 5, 2024 and sell it today you would earn a total of  70.00  from holding Principal Exchange Traded Funds or generate 3.48% return on investment over 90 days.

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

Franklin Liberty Investment  vs.  Principal Exchange Traded Fund

Franklin Liberty Inv

Risk-Adjusted Performance

Weak

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

Principal Exchange

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Exchange Traded Funds are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Principal Exchange is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Franklin Liberty and Principal Exchange

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

The idea behind Franklin Liberty Investment and Principal Exchange Traded Funds 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.