Correlation Between Franklin Liberty and IShares ESG

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

Diversification Opportunities for Franklin Liberty and IShares ESG

0.93

Correlation Coefficient

Franklin Liberty  IShares ESG

Almost no diversification

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

Pair Corralation between Franklin Liberty and IShares ESG

Given the investment horizon of 90 days Franklin Liberty Investment is expected to generate about the same return on investment as iShares ESG USD. However, Franklin Liberty is 1.0 times more volatile than iShares ESG USD. It trades about 0.26 of its potential returns per unit of risk. iShares ESG USD is currently producing about 0.26 per unit of risk. If you would invest  2,278  in iShares ESG USD on December 4, 2024 and sell it today you would earn a total of  40.00  from holding iShares ESG USD or generate 1.76% 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 ESG USD

Franklin Liberty Inv

Risk-Adjusted Performance

Insignificant

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 ESG USD

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Franklin Liberty and IShares ESG

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

The idea behind Franklin Liberty Investment and iShares ESG USD 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.