Correlation Between Franklin Liberty and IShares Aaa

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

Diversification Opportunities for Franklin Liberty and IShares Aaa

1.0

Correlation Coefficient

Franklin Liberty  IShares Aaa

No risk reduction

The 3 months correlation between Franklin and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Investment and iShares Aaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Aaa 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 IShares Aaa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Aaa has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and IShares Aaa go up and down completely randomly.

Pair Corralation between Franklin Liberty and IShares Aaa

Given the investment horizon of 90 days Franklin Liberty Investment is expected to generate 0.93 times more return on investment than IShares Aaa. However, Franklin Liberty Investment is 1.08 times less risky than IShares Aaa. It trades about 0.23 of its potential returns per unit of risk. iShares Aaa is currently generating about 0.19 per unit of risk. If you would invest  2,130  in Franklin Liberty Investment on September 13, 2024 and sell it today you would earn a total of  30.00  from holding Franklin Liberty Investment or generate 1.41% 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.  iShares Aaa

Franklin Liberty Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

iShares Aaa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Aaa has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aaa is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Liberty and IShares Aaa

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

The idea behind Franklin Liberty Investment and iShares Aaa 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.